Reverse mortgages - 4 things that can sneak up on you
- By Neal Coxworth
- Published 02/4/2010
- Finances
- Unrated
Reverse mortgages - 4 things that can sneak up on you
You may have seen a lot of advertising these days about Reverse Mortgages. Usually the ads are targeted at Senior Citizens and going for the favorite angle of financial services companies letting us know that reverse mortgages provide "piece of mind".
1.) So, what exactly is a reverse mortgage? A reverse mortgage is a way to receive monthly income from a financial service provider using your home. People who rent cannot get a reverse mortgage. Instead of you paying the bank a monthly mortgage payment, they instead pay you a monthly payment in exchange for equity in your home. In exchange for these monthly payments, the bank puts a lien on the home in the amount of the total disbursed to the owner of the home. Additionally, there can be restrictions based on the location of your home.
Some things to remember are this:
- You must have a considerable amount of equity in your home to qualify for a reverse mortgage. Don't even consider it if you owe 70% of the value of your home or more.
- Most programs have an age limit stating that you must be at least 62 years of age to apply.
- You will pay interest on the amount disbursed to you, just like a traditional mortgage.
- Upon the termination of the mortgage, either at the owners death or when no longer needed, the mortgage must be paid off like any other loan. This usually done through sale of the house. In a declining Real Estate market, this is an important factor to consider, as many reverse mortgage recipients may have very little left after the settlement of the mortgage debt.
- Reverse mortgages are always in the first position. This means that if you have a seocnd mortgage, it will need to figured into the calculations to see if you qualify for the reverse mortgage.
2.) These mortgages have become popular for a number of reasons. One of the biggest is that the baby boom generation ages, many do not have enough income to cover their expenses without having to leave their longtime homes. As the era of corporate "pensions" fades into history, these baby boomers are caught in a very bad position, and a reverse mortgage can help plug the income gap. Many times reverse mortgages are also used tocover unexpected medical expenses that aren't covered by insurance.
3.) Because the marketers of these products often target the elderly, there is always an element of extra caution that is needed if you or you loved ones are considering this as an option as some of the tactics used to get people involved are very aggressive and may not disclose all the pitfalls.
4.) As the saying goes, most Americans biggest asset, especially later in life, is the home that they own. A reverse mortgage can drastically alter the financial picture of someone who may have spent a lifetime building a financial nest egg that could potentially be destroyed by using such a product. The key is for the person signing the mortgage to completely understand the terms before closing.
1.) So, what exactly is a reverse mortgage? A reverse mortgage is a way to receive monthly income from a financial service provider using your home. People who rent cannot get a reverse mortgage. Instead of you paying the bank a monthly mortgage payment, they instead pay you a monthly payment in exchange for equity in your home. In exchange for these monthly payments, the bank puts a lien on the home in the amount of the total disbursed to the owner of the home. Additionally, there can be restrictions based on the location of your home.
Some things to remember are this:
- You must have a considerable amount of equity in your home to qualify for a reverse mortgage. Don't even consider it if you owe 70% of the value of your home or more.
- Most programs have an age limit stating that you must be at least 62 years of age to apply.
- You will pay interest on the amount disbursed to you, just like a traditional mortgage.
- Upon the termination of the mortgage, either at the owners death or when no longer needed, the mortgage must be paid off like any other loan. This usually done through sale of the house. In a declining Real Estate market, this is an important factor to consider, as many reverse mortgage recipients may have very little left after the settlement of the mortgage debt.
- Reverse mortgages are always in the first position. This means that if you have a seocnd mortgage, it will need to figured into the calculations to see if you qualify for the reverse mortgage.
2.) These mortgages have become popular for a number of reasons. One of the biggest is that the baby boom generation ages, many do not have enough income to cover their expenses without having to leave their longtime homes. As the era of corporate "pensions" fades into history, these baby boomers are caught in a very bad position, and a reverse mortgage can help plug the income gap. Many times reverse mortgages are also used tocover unexpected medical expenses that aren't covered by insurance.
3.) Because the marketers of these products often target the elderly, there is always an element of extra caution that is needed if you or you loved ones are considering this as an option as some of the tactics used to get people involved are very aggressive and may not disclose all the pitfalls.
4.) As the saying goes, most Americans biggest asset, especially later in life, is the home that they own. A reverse mortgage can drastically alter the financial picture of someone who may have spent a lifetime building a financial nest egg that could potentially be destroyed by using such a product. The key is for the person signing the mortgage to completely understand the terms before closing.
Neal Coxworth
Neal Coxworth is an entrepreneur and a 17 year veteran of the consumer credit industry with experience in originating, underwriting and processing mortgage, student and consumer credit loans. He publishes an informational blog for consumers at http://www.lifeloansfreeinfo.com
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