Reverse
Mortgage Explained;
A reverse mortgage is a means of releasing equity from your home for senior homeowners. They are called reverse mortgages because instead of borrowing money from lenders to buy a home, homeowners can use their home as collateral for borrowing to spend in other ways. So this allows people to have a cash flow from the equity in their homes without having to sell it.
Instead of making monthly payments, the lender pays you. The mortgage is repaid from your home’s equity when you sell, when you decide to move out permanently, or upon the borrower’s death.
To qualify for a reverse mortgage you must be over 62 years old, your mortgage must be fully paid off or close to being paid off. The amount you can borrow depends on the equity in your home, the value of your home and your age. You can choose to receive the payments in a lump sum, in monthly payments or as a line of credit so you can draw on funds as and when you need to. Reverse mortgages are becoming an increasingly popular way of releasing cash which is tied up in a home. But you must take several aspects into consideration.
Borrowers should realise that unless the growth rates of property remain high, any remaining equity in the home will be steadily decrease over time. This means that there will be less to pass on to family.
Interest is accumulated over the loan term so that the final debt will be a lot more than the original loan. While borrowers do not have to make any repayments while they are alive, this debt must be repaid eventually, usually out of the estate.
Borrowers will have fewer assets to leave to children. Unless the loan is repaid prior to death, the beneficiaries of the will could be left with a property with an outstanding loan against it. |
