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Reverse Mortgage

What is a Reverse Mortgage?

Reverse mortgage uses up the home equity and provides cash. They are powerful enough to tap into the value of your home and can be considered while looking for loan alternatives. This type of loan is basically for older and retired people to help them with their limited income so that the healthcare payments along with the monthly living expenses can be fulfilled with the wealth they have in the form of a house. Payments are made by the lender to the borrower which is perhaps very different from the traditional mortgage.

Types of Reverse Mortgages

There are three types of reverse mortgages and it varies from individual to individual as to which suits his needs the best.

  • The least expensive one is the Single-purpose reverse mortgage which is offered by the non-profit organizations, local government agencies, and states. The loans, however; are to be used for one single purpose which will be specified by the lender. He might use it to pay property taxes, home repairs or improvements. That is totally up to him. People with low income can qualify it easily.
  • Private loans are offered by companies who develop them and they are called Proprietary reverse mortgages. Through proprietary reverse mortgage, you might get a bigger loan advance only if you own a higher-valued home. Qualify for this type of fund is easy if you have a small mortgage with a higher appraised valued home.
  • The third type of loan is backed up by U. S. Department of Housing and Urban Development (HUD) called the Home Equity Conversion Mortgages (HECMs) which can be used for any kind of purpose.

Reverse Mortgage key points

If the surviving borrower dies, it is important that the loan is repaid. Before the loans get due, a borrower is permitted to live in other medical facilities or a nursing home for 12 months.

Its features include:

  • Origination fees and other closing costs are charged by lenders along with service fees. The fees and costs are set by him.
  • Interest is added to the amount of money you owe each month and is charged on the outstanding balance so the total debt keeps on increasing.
  • They have variable or fixed rates. Variable rates change according to market conditions and are tied to a financial index.
  • Some of the equity is used up by reverse mortgages which mean fewer assets for you and your progeny.
  • You will still be responsible for all the utilities, taxes, maintenance and property taxes since you still retain the title to the home.
  • If the loan is paid off in half or full, interest will be nondeductible in income tax.

When is the Reverse Mortgage due?

As long as the loan obligations are met, a reverse mortgage does not become due. As an example, you live in your house and pay homeowners insurance, maintains the home according to Federal Housing Administration, pay taxes as well, however, a foreclosure will result if these requirements are not met.

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