How Reverse Mortgages Work
Times are hard for the seniority in the face of economic depression, notwithstanding the pension that is provided to them by the local government. More often than not, seniors don't have the sufficient financial resources to support themselves in lieu of medical expenses, Social Security contributions, home repairs and maintenance. What they often have is an expensive home that doesn't really provide them the necessary benefits to sustain their way of living. The option to loan money using the home's equity is there, but the imposition of the monthly interest for borrowing money can only exacerbate their financial difficulties. Good thing there's another option called reverse mortgages.
So what is a reverse mortgage? Perhaps it's better explained as a process that gives you the luxury to convert your equity into cash, but this time, without the hassle of paying for monthly installments. This is a promising program for many seniors in dire need of steady cash inflow. To prove that point, you only need to look at the statistics showing the staggering increase of reverse mortgages from 18,000 in 2003 to approximately 107,000 in 2007 (source: U.S. Department of Housing and Urban Development).
Also adding to the advantages of reverse mortgages over other loaning programs is having the option to receive the payment in three forms, which are as follows:
*Single lump sum of payment
*Regular monthly payment
*Credit line account
There are also three types of reverse mortgages. Each of them has different terms and requirements. You can choose which type best applies to your needs and capacity.
1. Single-Purpose Reverse Mortgages. These mortgages are mostly offered by non-profit groups, including the local and state government. It's the cheapest mortgage to apply for. The drawback here is that the homeowners must qualify with certain income restrictions.
2. Proprietary Reverse Mortgages. This type is tied with private companies, and has fewer qualifying restrictions. The borrower, however, will have to pay upfront fees.
3. Home Equity Conversion Mortgages (HECMs). HECMS are widely popular since it is the only type of mortgage that guarantees the promises of the loan are delivered. The local government supports this type of mortgage as well.
The minimum age required to apply for a reverse mortgage is 62 years old. You should also be the principal occupant of the home. Furthermore, the minimal mortgage balance can be paid off with proceeds from the loan.
The amount given to you monthly will depend on several factors. These factors are age, home location, and the home's price value. In simple math, every amount that you are given reduces the value of your home's equity. And it is also important to point out that the total loan amount cannot exceed the value of your home's equity.
The calculations can be confusing, especially for the old timers. But don't worry your age away, for you can find a slew of reverse mortgage calculators on the internet. Just type the keywords "reverse mortgage calculator" and I promise you that you'll be bombarded by links that can provide you with these useful online calculators.
There are risks involved in reverse mortgages, so you would do well to get the services of a professional reverse mortgage counselor. If you get the facts straight and have everything in order, your senior years just might turn out to be the best years of your life.
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