subject: Reverse Mortages are they clever or a scam? [print this page] Author: Paul Ritchie Author: Paul Ritchie
In the last two years, the popularity of reverse mortgages has grown enormously.I was looking at some Australian statistics yesterday and in Australia, almost $900 million worth of loans written in 2008. The trend in Australia follows huge success that lenders have had with the concept in both the UK and USA..The trend is set to continue as more retirees become cash poor. The way a reverse mortgage works is quite simple The loan once established requires no payments to be made by the retiree until one of the following events happens. 1. The borrower sells the property 2. The borrower(s) decide to move into an aged care facility 3. The borrowers pass away. Why is there a need for Reverse Mortgages? The reverse mortgage concept came about because of the amount of cash poor retirees having to sell the homes to live. Most of these people owned or had very significant equity in their principal residence but were quite cash poor. The best part about a reverse mortgage is that the borrowers have no restrictions on what they use the money for. Whether they want to use the money to travel or give their grandchildren money for university they have choice. The truth is that if someone needs a reverse mortgage it is mainly because of insufficient funds to live without regular income. Some would say they have not allocated their money well enough. In truth their can be so many reasons that a retiree needs to consider a reverse mortgage including health reasons that called for an early retirement. How does the concept Work? Although a reverse mortgage usually requires no payments to be made the debt becomes payable by beneficiaries of the mortgage holders. Often the children of the retirees that have taken out the reverse mortgage will take one of two options when the property is sold or due to be paid out. 1. Sell the property and pay the loan back in full. 2. Keep the property and the debt and elect to make interest only payments. This is effectively turning their willed asset into an investment property. During the loan fees, charges, and interest are payable by having a deduction from their monthly income stream, or adding them to the loan. The reverse mortgage concept has become so popular that most major lenders in the UK, USA and Australia have calculators specifically to calculate these types of loans. Are there any restrictions with Reverse Mortgages? One of the calculations that lenders use takes into consideration the borrowers age and the ratio between the loan value and the properties value. When working out what the maximum lend on a reverse mortgage can be the age of the youngest borrower is one of the key considerations. The Inheritance Factor The best thing for anyone to do if they are considering a reverse mortgage is to have talks with a registered accountant and a lawyer. The main point of discussion will often be the inheritance issue. As the retirees will be borrowing, against their homes value the amount of equity they have in the home can decrease quite dramatically. There is absolutely no question reverse mortgages are increasing in popularity and that lenders should offer this loan product. The most crucial thing is that the lenders never take advantage of a clients age or situationAbout the Author:
Paul Ingersole is an Australian based business person who enjoys writing.Paul discovered a great system that makes small continuous recurring profits using the internet.You can see Google Sniper at Paul's website
