How Use A Reverse Mortgage
There is a lot of confusion surrounding the reverse home loans
, and, regretfully, most of the information available is available from companies who are trying to sell them. It is important to understand the pros and cons of the use of a reverse mortgage.What exactly is a reverse mortgage? A special kind of home loan was formulated by the United States Housing Department which would help homeowners over 62 take advantage of the equity in their homes. Essentially, the amount of equity built up in a home over the years is paid out to the homeowner. What differs it from a regular home equity loan is that no principal is paid until the home is no longer occupied by the borrowers.
When the home is sold, the money is used to pay off the mortgage. Of course, only the amount between what is currently owed on the home and the market value may be borrowed.
Many older homeowners have taken advantage of this program to add to their income, cover medical expenses or make necessary accommodations to their houses. Older people, without a salary would not be eligible for a normal equity loan that has to be repaid.
But there are some caveats to be aware of with reverse home loans.
An added expense that exists in reverse equity mortgages is non recourse insurance, which gives the lender a guarantee in case the amount distributed under the mortgage turns out to be more than the sale price of the house. There will also be the traditional closing fees.
These costs make it important to completely understand this kind of a loan. The homeowner needs to live in the home for quite a number years to make all of the additional costs of the mortgage worthwhile.
by: Madelyn J. Stewart