Reverse Mortgages
In the past, the only way to get money from your home was to sell it, after which you had to move, or to refinance it, after which you had to make monthly payments.
Reverse mortgages are a new option for people over 62 years old who own their home and live in it as their primary residence. The purpose is to get cash out of their home without having to move or make monthly payments.
This type of mortgage is a loan against the home that does not have to be paid back as long as the owner is alive and living in the home, and provides income in the meantime.
This income can be in the form of a lump sum, a monthly cash payment, or a credit line. There are no income qualifications and no payments.
How Do Reverse Mortgages Work?
A reverse mortgage works the opposite way of a traditional mortgage. Both are debt against the value of your home and affect how much equity you have in your home.However, with a reverse mortgage, your debt gradually increases and your equity gradually decreases. This scenario is called a "rising debt, falling equity" situation.
They are available for single-family homes, as well as some condominiums and manufactured homes. Reverse mortgages are not available for mobile homes or cooperatives.
State and local governments back some reverse mortgages. Loans from these agencies usually have the lowest costs, but they must be used for paying property taxes or making home repairs.
Private loans granted through banks or mortgage companies could be used for any purpose. However, these loans usually charge application fees and closing fees, as well as other costs such as interest and monthly transaction fees.
[Continued: Reverse Mortgage, Part 2]