Reverse Mortgages - a Reversal of the Mortgage Process
Mortgages have assumed a number of characters from the time of their inception. The traditional mortgages used to be of the
repayment type. Every month the mortgagor used to pay a certain amount towards both principal and interest. Sensing the hardships
that people have to face in making these payments, mortgage providers came up with interest only mortgages. But the present
day customer is more pampered. He needs a mortgage where he enjoys the cash, but is not required to pay a penny towards the repayment.
A reverse mortgage is a perfect solution to such requirements. It allows a homeowner to plough the equity in his home to get
cash. While the borrower enjoys cash on the mortgage, he is rid of any monthly payments.
The amount of loan received on the reverse mortgage will depend on the age of the borrower and the value of the home. The
borrower has no obligation to repay the loan as long as he continues to reside in the house or as long as he survives.
To understand the reverse mortgage, it will be beneficial to compare it with forward mortgages. The forward mortgages are the
traditional mortgages. These require a monthly payment either towards both principal and interest, or only towards the
interest. This way the forward mortgage is repaid at the end of the repayment period.
However, reverse mortgage works opposite to the forward mortgage (hence the name). The lender advances money to the
customer, for which he receives no payment. This means that the debt goes on increasing. Simultaneously the equity in home
decreases. This is a rising debt and falling equity scenario. The amount of debt can never increase the value of the home. Thus,
the mortgage provider, at the time of repayment, can only lay claim on the home.
Reverse mortgage is only available to people who are 62 years or more of age. The home to be mortgaged must be owned by the
borrower, either individually or as a joint holder. He must have lived in the home for the majority of the years and this must be the primary residence of the customers.
Reverse mortgage is a good source of income for the elderly people. The borrower must decide the manner in which the amount
received through the reverse mortgage is to be disbursed. The government does not tax the amount received on the mortgage, and
the borrower is free to use the money in the way he likes. Customers who want a regular income can draw a regular monthly
payment. Some customers want a credit line opened in their name so that they can draw cash as and when they want. For others the
availability of a lump-sum amount is more important, since they can apply it for purposes that are more constructive. Even a
combination of these options may be used to draw the money on mortgage.
The reverse mortgages are also distinct from the other mortgages on the ground that there is no limitation on the amount
of income a person must have in order to be eligible for a reverse mortgage. The mortgage is secured on the home of the
borrower. This shields the lender against any defaults on the mortgage. Therefore, credit history of the borrower is not much of a problem.
Keeping the home as collateral does not mean losing the right to stay in the home. The borrower can continue living in the home
as long as they wish. The mortgage provider holds the right to the property, or the first mortgage. When the mortgage is repaid,
the mortgage provider has to part with the rights to the home.
The mortgage will have to be repaid on the death of the last of the co-owners, if the borrower moves house permanently, or if
the house is sold. Repayment of the mortgage also becomes due when the borrower fails to pay the property taxes, maintain the
home, or pay the insurance of the home. Bankruptcy, letting your home, adding a new owner to the homes title, and being indicted
in a fraud or misrepresentation are sufficient grounds on which the mortgage provider may demand repayment. If in case the
borrower is not able to repay the mortgage, then the house will be confiscated.
Reverse mortgage leaves little equity in the home to be used by the heirs, unless the home equity is growing at an increasing
rate. This will even impede the borrower from getting a secured loan or mortgage. Thus, even though a reverse mortgage is better
because there is no obligation to make monthly payments, they must be taken with caution. Planning the repayment of the
mortgage in advance, will let you enjoy the mortgage, while saving your house from repossession.
MORTGAGE-REFINANCING NEWS updated
Sun. June / 16 / 2019
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