After you have paid a monthly mortgage for years and years, a reserve mortgage can be taken out so that the mortgage lender actually pays you. You must be the owner of your home, at least 62 years old and an American.
A reverse mortgage is a loan. Borrowers who want to use this type of loan are actually taking out the loan on their home’s equity, and the mortgage lender is going to pay you according to the plan you select. You can choose to get a credit line, monthly payments, a lump sum or a combination of any of these. The interest for this loan will be added to the sum of the loan and gets paid back when the loan gets closed out. Consequently, the borrower is not going to pay anything monthly or annually.
The reverse mortgage loan does have some determining factors. They are your age, the appraisal value of your home and the interest rates. The home will be more valuable the older you are, and the interest rates being low will determine how much you can get. If you owe something on the home, that dollar amount is taken from the loan amount as well as the loan fees.
The downside of a reverse mortgage loan is that it is quite expensive. The origination fees run around two percent for the first $200.00 of the loan value and then one percent after. You will be required to pay for mortgage insurance which runs around two percent along with a monthly service fee.
A reverse mortgage is not for a person who plans to move out of the home anytime soon. It is more beneficial for someone who plans to stay in the home for years.
One must remember that getting a reverse mortgage means that your most valuable asset is being touched. This is where your neighbors are. This is where your memories are. Some seniors have a tough time with this because they don’t like to eat at the home equity they have built up for so many years. This is something that a senior needs to think about before making the decision to go ahead with a reverse mortgage. Weighing the pros and cons will help you decide what is best for your specific circumstance.