A reverse mortgage is one of the types of mortgages available to homeowners who are deemed eligible to apply. With these mortgages, a loan is provided based on the amount of equity a property has. Borrowers can choose to receive their loan as one large lump payment, a line of credit, or as monthly payments. These mortgages are secured by using the home for loan collateral.
A home’s equity is the real value of the property. Equity value is determined by finding the difference between the fair market value and any financing or lien balances owed on the property. Balances on existing mortgages lower as payments are made, which increases the amount of available equity. Property value also increases as balances are lowered.
Reversed mortgages are the opposite of regular mortgages. Monthly repayment is not necessary, and these mortgages do not have a principle plus interest. Repayment for these types of mortgages does not occur until the loan has matured, often when the home has been put up for sale.
Although these loans require the home as collateral, you still own the home. As such, you are still responsible for paying property taxes and homeowner’s insurance. While there are not required payments on the loan, repayment may be demanded if the homeowner does not pay the taxes, does not maintain the property, or does not keep insurance on the home. If everything remains taken care of, repayment will not be necessary until the last remaining property owner becomes deceased, the home is sold, or the home is permanently vacated.
Homeowners must meet certain requirements in order to be eligible for reversed mortgages. The qualifying minimum age is 62 and the home should be owned. If there is an existing loan on the property, the balance needs to be fairly low. Homeowners must reside in the home and it may be required to provide proof of tax payments and insurance. Also, there must not be any federal debt owed. After all requirements are met, borrowers can decide which payment method they desire.
Tenure payments occur monthly as long as one owner remains alive and in the home. Term payments occur monthly for a fixed schedule, until the loan amount is reached. Modified tenure and modified term loans combine a line of credit with either monthly payment as long as one owner lives in the home or monthly payments for a fixed amount of time.
United States residents who want to apply for one of these mortgages will be required to go through a course that counsels applicants. The course provides information about these mortgages so that everything is understood and there is less of a chance of confusion that can be damaging. Certificates of completion are issued that will need to be provided to lenders.
Similar to other mortgages, knowing what to expect and how things work can save you a lot of trouble. A home is an important investments, so anything that involves that investment should not be taken lightly. Gathering information and asking questions can help prevent disastrous mistakes that can cost money.
You may consider a reverse mortgage if you are a senior citizen, but to learn the facts of a reverse mortgage click here.
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