What is a Reverse Mortgage?

Reverse Mortgages are a type of mortgage loan where cash is advanced against the equity in your property.  Similar in some ways to cash out refinancing, a reverse mortgage allows you to gain immediate access to funds using your home as security against the loan.  The big difference with Reverse Mortgages is that you DONT NEED TO PAY THEM BACK.

With a reverse mortgage you are advanced cash, and interest is charged against the loan balance just the same as with a regular home mortgage loan, with one important difference - you have no mandatory repayments.  Instead, the loan balance slowly increases over time and the debt is repaid upon the sale of the home.  For this reason a reverse mortgage is almost always a first mortgage, as the lender must have primary security over the loan to ensure that their interests are protected.  This type of mortgage loan is very popular with retired people, who want to gain access to the equity in their home, but do not have the financial capacity to service standard loan repayments.

 

Current Refinance Mortgage Rates

Refinance Rates
Purchase Rates
Refinance Rates,
   Product:                      Today        Last Week
Compare rates in your area:
Mortgage Rates
Refinance Rates
Purchase Rates
Purchase Rates,
   Product:                      Today        Last Week
Compare rates in your area:
Mortgage Rates

Reverse Mortgages Pros and Cons

Reverse Mortgages have a lot to recommend them, but there are some notable down sides as well.  While a Reverse mortgage may not have any mandatory repayments, the amount of the loan can quickly rise over time if no repayments at all are being made.  Because the loan is always increasing in size, the interest that is charged continues to rise as well, just as the opposite is true for a traditional home mortgage.  The interest rate charged on the mortgage balance is also traditionally higher then standard mortgage rates to compensate the lender for not recieving regular installment payments.  Reverse Mortgage lenders will also lend only against the equity in the property and the amount loaned is only a small proportion of the total equity available.  Below is a Pro's and Cons reference table:

 Reverse Mortgages Pros

  • Immediate access to cash for use NOW.
  • Lender Cannot Foreclose (in most circumstances)
  • No mandatory repayments
  • No income, credit score or employment history criteria
  • Loan only repaid on sale of home or death of owner
  • Income from the loan can the released over time and is tax free.
  • the loan amount can never be greater than the value of the property.

Reverse Mortgages Cons

  • Higher interest rates 
  • Loan balance can increase rapidly if not repaid
  • Amount loaned is typically only a small percentage of total equity in the property
  • Only available to older people
  • Can reduce the legacy left available to beneficiaries of your estate.

If you are an older person seeking to supplement your income or raise funds for a one off project or raise sach for other reasins, then a reverse mortgage may be a good option for you.  Reverse Mortgage lenders assess each application separaetely and on it's own merits, however if you have siginificant equity in your property, this can be a good way to convert that equity into liquid cash to fund holidays, increased lifestyle freedom or medical treatment that may not be covered under your health insurance.  

Make a Free Website with Yola.