If you own a home, you know that mortgage products have outlived the 30-year fixed-prime option. A reverse mortgage is one such product and here is an overview.
Overview of reverse mortgage
A typical mortgage is created when a lender gives you a certain amount of money to purchase real estate. With this in mind, you agree to pay off the mortgage every month for a certain period of time at a certain interest rate. The length of the repayment term and the interest rate, whether fixed or adjustable, control the amount of the monthly payment.
A reverse mortgage works the same way but in the opposite way. It is a fact that the baby boomer generation is entering retirement age. A high percentage owns a home with a large amount of equity in it.
The problem, of course, is that the property is a fixed asset, i.e. you can’t see it in your bank account. Traditionally, the best way to monetize this difficult asset has been to sell the property and move to something cheaper. Then you can pocket the difference in cash.
However, many people are confined to their homes. Most of your life, including raising a family, will likely happen in your home and be emotionally difficult to sell. In addition, tax issues may interfere with the money you receive. Throw out pure misery because trying to move all the valuables you’ve accumulated over the past 15 or 30 years and sell your house is starting to look like a dubious option.
Lenders as major capitalists have found a solution to this problem. reverse mortgage. A reverse mortgage allows you to convert most of your equity into tax-free cash without having to incur any monthly payment obligations. You don’t have to sell your home, undergo a transfer, or make monthly payments to the lender.
A reverse mortgage gets its name from the payment process. Unlike traditional home loans, reverse home loans require the lender to make payments to you! You can choose to receive the money as a monthly payment for the rest of your life, a single payment, or even as a credit. Gross amounts are not recommended because homeownership is usually your biggest asset, which you should consider very carefully.
The amount of a reverse mortgage depends on a number of factors. Your age, interest rates, the appraised value of the home, the equity in it, etc. are all involved in making the decision.
For many people, the option of a reverse mortgage is very attractive. The tax-exempt payments aspect is certainly beneficial.