In today’s financial market, one of the most complex markets to navigate. Many questions have arisen about where to turn for an advance and how to find a good financial product without sacrificing safety abound. The advantages of reverse mortgages hold a promise as a secure and safe tool, despite the questions and myths existing about them.
These questions may include:
- What do they give?
- How do they work?
- How does the retention of residential ownership work?
What is a reverse mortgage?
Like a normal home loan, you pay monthly, both the principal and interest. Each month, the amount you owe goes down and the equity of the home goes up. As to how the name goes, a reverse mortgage works in the opposite fashion. A reverse mortgage turns the equity in the home into cash.
You don’t need to make monthly payments. The cash is paid in one or more of the following ways:
- Single lump sum payment
- Regular monthly amount
- Credit line account you draw as needed
With the reverse mortgage, the residential owner continues owning their home and receiving cash in whatever way is preferable. Since they are receiving cash on how their loan amount rises, and the equity in the home declines. The reverse mortgage can’t grow to more than the value of the equity of the house. Additionally, the lender seeks payment of the loan from anything, other than the house value.
The assets of the heirs and your other assets are protected by what you called the “non-recourse limit”. The reverse mortgage doesn’t have to get paid back. The repayment of a reverse mortgage will happen when the property’s last owner is named on the loan, either:
- sells the home
- permanently moves out of the home
Before, nothing needed to be paid on the loan. Some other circumstances that reverse mortgage lenders also require repayment of the loan before the above conditions, these include:
- Borrower fails to pay the property taxes
- Borrower fails to repair and maintain the home
- Borrower fails to keep the home insured
Also, there are other default conditions that cause repayment of the loan. Most of these are the same as default conditions for traditional mortgages, for example:
- declaration of bankruptcy
- abandonment or donation of the home
- misrepresentation or perpetration of fraud and more
The reverse mortgage must not be confused with a home equity line or home equity loan both are means of obtaining money for the equity to the home. Either of the loan vehicles, the individual should pay at least per month interest on the loan amount drawn or received on the equity line.