Just open your mailbox or flip on the TV. In your mail your getting tons of solicitations and on TV are recognized spokespeople talking about the reverse mortgage.
Truth be known most seniors have heard about reverse mortgages but still have very little understanding of what they really are.
So here we are. Here to make this subject clear.
The first thing to do is throw out any preconceived notion, anything you've heard from some guy, and keep in mind a reverse mortgage is nothing more than a mortgage on your home. The lender loans money using equity as security for its investment.
In this prior paragraph this definition could describe a traditional mortgage or a reverse mortgage. That is my point. I don't want people thinking the reverse mortgage is much different than a forward mortgage.
The point is these two mortgages are structurally similar, with just a few differences.
We get mortgages because we need the money for something? We have equity in the home either from a down payment or built up equity over time.
There is any number of things we can do with the money from our mortgage. If its a purchase those proceeds are used to pay the seller. If it's a refinance it's limitless.
The point is you are accessing the equity in your home to accomplish something monetarily.
The benefit of the reverse mortgage is you do not ever have to make monthly payments to the mortgage company.
Of course that begs the question, "how does the mortgage company make money?" Now we're talking.
The lender simply doesn't make money today. Instead of receiving monthly payments the lender lets interest accumulate on itself. It is the quintessential negative equity mortgage.
When the borrower passes away or sells the home, whichever comes first, the mortgage company is repaid the loan plus interest.
Important to note, because of all myths, is the borrower or it's family never loses ownership of the home during the mortgage.
With the ever increasing cost of life expenses and an ever not increasing income for so many seniors the reverse mortgage is gaining big popularity.
What people must understand is it is not the perfect answer to all financial situations. For example its closing costs can be prohibitively high in the wrong situation.
Article Source: the-Articles.com
About the Author
Author: MattVanrock
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