You’ve probably seen one of the big buzzwords to come out of the mortgage game in 2014, and you’ve probably been interested in it even if you already own a home, but what exactly is a “reverse mortgage”?
In a convention mortgage, the homeowner makes monthly payments based on the agreed-upon principal and interest rate to the lender until the value of the loan is paid off with any interest accrued. In the meantime, equity is built with each payment made to the lender. With a reverse mortgage, cash payments, in the form of borrowed equity, are provided based on home equity and homeowners are not even required to make monthly payments, and instead the interest of the loan rises while the borrower remains without obligation to repay a loan balance that is in excess of the value of the home.
It is a bit complicated and tricky, there is no hiding that. The first important thing to note is that, in order to be eligible for a reverse mortgage in the United States, you must first be at least 62 years of age and occupy the property as your primary residence. Interest rates can be adjustable or fixed, payment to the borrower may be presented in a lump sum of cash, monthly cash payments, a line of credit similar to a home equity line of credit, or a combination of the three.
Advantages to a reverse mortgage allow you to stay in your home and improve you immediate finances (as you’re not paying monthly, and you only really return the amount borrowed when you leave the home) while still giving you equity money to access. They are very flexible in terms of who can borrow (minding the previously mentioned eligibility requirements above) and there is a low risk of default. It is federally insured and tax free and there are no restrictions to what you can use that money for.
Naturally, there are also disadvantages to a reverse mortgage, and with the way the system works, it is very easy for less scrupulous lenders to take advantage of borrowers for a reverse mortgage. If you are eligible for a reverse mortgage and you want to talk with someone who will NEVER take advantage of you, come talk to me at Mortgage Loan Corporation. You will get the truth and nothing but.
Contact me today at (865) 429-0308.