Many people worry about money as they get older, and the income gets smaller. In most cases, these people have paid off their home mortgages, so they have equity, but not cash. Reverse mortgage lenders can help with this dilemma.
What is it?
Reverse mortgages is a way for homeowners to cash in on their property by converting part of their equity (or market value) into cash. Homeowners at least 62 years old can avail of this facility. In most cases, reverse mortgages are insured by the Federal Housing Administration under the Home Equity Conversion Mortgage
How does it work?
Homeowners can offer their property to reverse mortgage lenders, which then gives the homeowner a lump sum, monthly payments, or a line of credit, depending on the arrangement. The homeowner does not have to pay the lender anything unless the homeowner sells the property, lives elsewhere for 12 months, or dies. In any case, the lender gets back the principal plus the interest due by collecting from the owner or selling off the property.
What is required of the homeowner?
Aside from the age requirement, homeowners must live on the property. They must also keep their property tax payments and homeowners insurance policy current, as well as keep the property in good condition. The lender may file for foreclosure if homeowners fail to keep up their end of the bargain and have no means of repaying the loan, explains an expert from Primary Residential Mortgage, Inc.
When is it a good choice?
The initial costs and effective interest rates of a reverse mortgage can be high, depending on the type. Before getting one, find out if it makes sense for your particular situation. It is a good choice for senior citizens who can afford the property taxes and insurance and plan to stay put. They may need the cash to pay off their remaining mortgage, debts, or just to add to their income.
A reverse mortgage is an option for cash-strapped seniors with enough equity in their homes to make it worthwhile. However, it may not always be the best one. Consult your lender if you are a good candidate for a reverse mortgage, and what other options you may have.