A reverse mortgage also known as a lifetime mortgage that is specially applicable to senior citizens who are to use it as a release of the home equity in the form of a lump sum taken from the bank. Reverse mortgage does not enforce a person to repay back the loan, provided he lives there till the day he dies or he leaves the house. When he dies, his house is sold and the money goes back to the loan, or in the second option, when he leaves the house, he has to pay back the loan.
When taking the reverse mortgage, one has to research on many things and also understand the requirements. The initial condition of applying for a reverse mortgage is that the citizen must be of age 62 and above. The older the lender’s age is, the easier it is for him to qualify for a reverse mortgage.
There is no need for minimum income or credit requirements, however, the owner must go through his financial history, his home equity and value before he opts for such kind of mortgage. All existing debts should be paid off, and a proper legal financial help must be sought out before applying for any process.
The standard rate of money borrowed, irrespective of the value of the house is $625,500 which was raised from an older value of $417,000. The advantage with this loan is that after death, the property rights still belong to the heirs of the lender and with a monthly repayment of the mortgage the estate will remain within the property rights of the heir, but within a duration of one year the mortgage has to be settled. If the lender has no heir, then of course the property goes back to the bank or the loan company.
Despite the various advantages there are some drawbacks to reverse mortgages. The first problem is the high upfront costs, which means that the cost is made high due to the lower interest rate over the years. Some citizens choose other options such as an intra family loan, a sale leaseback or selling the current estate then moving to a less expensive residence. This will help avoid the high upfront cost, but will incur in other costs such as high closing, moving costs, purchase costs etc. Getting a typical reverse mortgage can cost around $15,000 or more and the complex terms and conditions that leaves a senior citizen baffled over the entire set up. That is the reason it is recommended that these citizens do a thorough research, ask professional help before really deciding to go for this mortgage. With proper guidance, 93% of borrowers were satisfied with the reverse mortgage, as reported in a survey in 2006.
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