Title:
An Overview of
Reverse Mortgages
Word Count:
460
Summary:
If you own a
home, you know mortgage products have moved beyond the basic 30 year fixed
option. Reverse mortgages are one such product and here is an overview.
Keywords:
reverse
mortgages, mortgage, home loans, lender, borrower
Article Body:
If you own a
home, you know mortgage products have moved beyond the basic 30 year fixed
option. Reverse mortgages are one such product and here is an overview.
An Overview of Reverse Mortgages
A typical mortgage is created when a lender provides you with a lump sum amount
of cash to purchase real estate. In consideration of this, you agree to repay
the mortgage on a monthly basis for a defined time period at a particular
interest rate. The length of the repayment period and interest rate, whether
fixed or adjustable, set the monthly payment amount.
A reverse mortgage works in a similar way, but backwards. It is a fact that the
baby boomer generation is moving into their retirement years. A high percentage
own homes with significant amounts of equity in them. The problem, of course,
is equity is a fixed asset, to wit, you can’t see it in your bank account.
Traditionally, the best way to turn this hard asset into cash was to sell the property
and move down to something cheaper. You then pocketed the difference in the
form of cash.
Many people, however, are attached to their homes. A good portion of your life,
including raising a family, may have occurred in your home and it is emotionally
difficult to sell it. On top of that, tax issues may take a bite out of the
cash you receive. Throw in the pure misery of attempting to move all of your
valuables that have been accumulating for 15 or 30 years and selling your home
starts to look like a dubious option at best.
Lenders being the ultimate capitalist, they have come up with a solution for
this problem. The reverse mortgage. A reverse mortgage allows you to convert
much of your equity into tax-free cash without having to take on a monthly
payment obligation. You don’t have to sell the home, go through the moving
process or make any monthly payments to a lender.
A reversed mortgage gets its name from the payment process. Unlike a
traditional home loan, a reverse mortgage requires a lender to make payments to
YOU! You can choose to receive the money as a monthly payment for the rest of
your life, a lump sum payment or even as a credit line. Lump sums are not
recommended since home equity is typically your biggest asset, one you should be
very careful with.
The amount of a reverse mortgage is dependent on a number of factors. Your age,
interest rates, the appraised value of the home, the equity in it and so on all
are involved in determining your options.
For many people, reverse mortgage options are of great interest. The tax free
aspect of the payments is certainly a benefit.