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By Sean A. Kelly
A reverse mortgage is a home loan available to seniors. Value of homes generally appreciates over time and such appreciation is termed as home equity. A reverse mortgage is a process of releasing this home equity either in terms of a lump sum or multiple payments. Perhaps this may sound familiar to you: you worked all your life, paying all taxes and mortgage and now, in your golden years you have only your pension to live from. You finally have the time for traveling or doing things you couldn’t do before because of the lack of time and the hard work… but now, you haven’t got the money you need! Senior homeowners can obtain a reverse mortgage on their current property and use the loan to greatly increase their income. Repayment of such loans is the home owner’s obligation which comes into effect when the home owner dies, moves to an old-age home or if the home is sold. If you are 62 or older – and looking for money to finance a home improvement, pay off your current mortgage, supplement your retirement income, or pay for healthcare expenses – you may like to consider a reverse mortgage.
After retirement, many homeowners may discover that their reduced income is not enough to support the lifestyle to which they have become accustomed. Thousands have found that their social security benefits have shrunk and their retirement pensions have been depleted or significantly reduced due to the US’ economic struggles. How can a homeowner continue to afford his or her home mortgage and lifestyle without diminishing his or her savings? Reverse mortgage help is available for such a situation. Reverse mortgages are different from conventional mortgages. In conventional mortgages home owners pay off the principal and interest accrued over a set period [e.g. 25 years] via regular monthly payments until the tenor is completed. That’s when the property is released by the lender to the home owner. However in reverse mortgages if the home owner chooses to receive the home equity in lump sum, he does not make any payments. All interest is added to the loan as lien. If the home owner chooses to receive the home equity as monthly payments from the lender, then the debt on the property increases each month. Key aspects to consider when thinking of reverse mortgages may be the fact that extracting all or what little equity one has left to pay off now may be very short-sighted in the long run. To take virtually all of your savings now when one may have another 20 to 30 years of retirement left may not sound like good judgment in any way.
Reverse mortgage loans are a lot like any other loans against the home but may have exclusive terms for seniors. There are two kinds of reverse mortgage loans. One is federally insured reverse mortgage backed by HUD, and the other is retail reverse mortgage backed by corporate lenders. Both of them are designed to pay out portion of your homes equity in cash. The amount has no constraint regarding how the funds need to be used. Additional options could be that the funds can be obtained in monthly payments structured as needed, line of credit (with a growth rate), lump sum, or a combination of these. It is also not considered as income hence the seniors Social Security and Medicare may not be affected. Assuming you have arrived at your retirement age and are mainly obtaining a fixed income, a difficulty may possibly arise when unexpected medical or funeral bills come particularly if you don’t have any liquid assets set aside to cover the cost. The top alternative solution with this may be to consider applying for a reverse mortgage loan.
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