An overview of reverse mortgages and key facts


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What are reverse mortgages?

To make it very simple for you to understand, a reverse mortgage is a loan. This is best explanation for those who have no clue about it. To make it clearer for you, I would like to tale the help of an example. For instance, imagine that you are the proud owner of a luxury home. And you need to take a loan. Now, instead of a forward mortgage that you would need to purchase a car, you take a loan again the value of your house. This is why it is referred to as a ‘reverse’ mortgage. The deals can be

How does a reverse mortgage work?

The most important point that needs to be noted here is that in case of traditional loans that have been followed by the masses for long, it is you who will have to pay the money to the lender in instalments or in a lump sum amount, as soon as possible or the interest keeps getting added. However, in case of reverse mortgage, it is the lender who keeps making the payment to you. In fact, the ball is in your court and you get to decide how and when you wish to take the funds from the lender. Please note that you pay interest on only the amount that you have received and now the entire amount that you have signed up for. Thus, these may be generic or naked and you get to reap the benefits just the same. One very important fact about a reverse mortgage is that it is not taxable.

Types of reverse mortgages.

  1. Lump sum: This means that it happens all at once. Just like a regular bank loan that you take, in this case too, you are eligible to receive all the proceeds at one go after the loan has closed. It is the only type of reverse mortgage that comes with a fixed rate of interest.
  2. Equal monthly payments: There will be a monthly payment of the same amount as long as at least one member resides in the home against the value of which the loan has been taken.
  3. Term payments: As stated earlier, the borrower gets to choose the term of the loan payment. Thus, if a borrower chooses a period of ten years to say as an example, then the lender has to keep paying up monthly instalments of equal amounts for ten years. This period differs according to the choice of the borrower.
  4. Line of credit: Money is given to the borrower as and when needed. In fact, he only has to pay the interest on the amount that he has already taken, instead of the full sum of the desired loan.
  5. Equal monthly payments plus a line of credit: It is the duty of the lender to provide money as long as one member from the borrower’s family resides in the house. If there is still the need for more money, then definitely the borrow can make use of line of credit.
  6. Term payments plus a line of credit: This too means that the lender pays for the period chosen by the borrower and then the borrower may access the line of credit if needed.

Thus, reverse mortgage deals can be but they certainly have innumerable benefits.

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