How Does a Reverse Mortgage Work?
How does a reverse mortgage work? Let’s put it in the easiest way possible. For example, you’re already in your 60s and have no idea what to do with your property. You can opt for a reverse mortgage. Reverse mortgage lets you borrow from the equity of your home to fix your monthly payment. In the end, you no longer have to mind the repayment as long as soon as you moved out or rent out the property.
To help you understand, here’s the basic lowdown on reverse mortgage and how it works.
How does it work?
The bank where you got your loan makes payments to the borrower based on a percentage of accumulated home equity. This is where you really appreciate the equity of your property. It got automatically repaid through three different situations: when the borrower dies, when he or she sells his home, or when they rent it out. Seniors above 62 years old are the ones who can get reverse mortgage. They usually use the money for their health and other utilities.
(Check Out: Main Reasons Why Home Loans Are Rejected)
Instead of making monthly payments to a lender or to the bank, a lender or the bank makes payments to you, based on a percentage of the value or the equity in your home. You have the complete control on how you are going to get the cash. You choose whether the cash is paid as a single lump sum, a regular monthly cash advance, a line of credit (where you decide when and how much to borrow), or a combination of these methods. It is for the elders who no longer want to think about paying off their mortgage.
• Does not require monthly payments from the borrower. This will truly help the elders cope up financially, especially if their children are no longer providing for them.
• Proceeds can be used to pay off debt or settle unexpected expenses like health care and other utilities that are needed.
• The money can pay off the existing mortgage that they haven’t paid off yet.
• Funds can improve monthly cash flow of the elders who are using this.
• Fees and other closing costs that has to be paid can be high.
• Borrower must maintain the house and pay property taxes and homeowners insurance. There’s still a lot to mind and to pay.
• A reverse mortgage can complicate one’s wish to keep the house in the family. After using the reverse mortgage, relatives can have a hard time getting the property.
Should you get one?
Reverse mortgage really sounds appealing. Imagine when you’re older and you no longer have to pay for your property. You can also enjoy other benefits that can be good for your well-being. But the only sad part is that there’s a possibility that your legacy, the property, will no longer be transferred to your kin or to your relatives. It will be better if you sit down with the ones closest to you and ask if this is ok with them.