Reverse Mortgages On Home’s Equity

Reverse mortgages are the mortgages that give profit on the base of equity. Equity is basically the difference in market value of a property and the claims held against it. The borrowers do not have to return the loan as long as they are using the property.

The payment of loan becomes due in case of moving to another residence or borrower’s death. The loan can be in the form of one complete payment or monthly installments. In some cases, however, it is a combination of both. Some of the amount is paid at once and the rest as monthly income.

Risk factor in reverse mortgages

Although, the reverse mortgages seem profitable and beneficial apparently there is a very high risk factor associated with this. The borrower may lose the property any time. The loss of property will obviously be followed by legal proceedings from the creditor to repossess the collateral of the loan.

Who are the borrowers of reverse mortgages mostly?

In most of the cases, these loans are taken by old people who are in need of cash to pay property taxes or for house repair or any other reason. Earning from the home’s equity is a good option for them because the elderly people usually prefer to live in their homes. Young generation is generally fond of selling the property or moving t other places. That is why they do not consider it a good choice.

Who are the lenders of reverse mortgages?

There can be different kinds of lenders. But the reverse mortgages are usually provided by

  • Local government
  • State
  • Federal government organizations

What are the factors that determine the amount of loan?

The most important factors in this regard include

  • The age of the borrower
  • The value of the property
  • Policies and regulations of the lending institution

Home Equity Conversion Mortgage

Home Equity Conversion Mortgage is a kind of reverse mortgages. It works under the rules and regulations of Federal Housing Administration. Federal Housing and Urban Development (HUD) is an organization and Federal Housing Administration is an agency which is a division of this organization.

Following are two important matters on which these institutions formulate and observe the laws.

  • The maximum allowable amount of loans
  • The obligations of lenders to the borrowers

What are the cases that make the payment due?

There are several cases which make the repayment of loan compulsory. These include

  • Borrower’s death
  • Moving to another primary residence
  • Causing damage to the property
  • Inability to maintain the property in its original acceptable conditions
  • Failure to live in the home for more than a year
  • Failure to pay property taxes
  • Failure to fulfill any of the borrower’s obligations

Social and economic significance of reverse mortgages

It is indeed tragic to see old people in need of money in spite of having the children who should help their parents as they helped them in their childhood. The need in old age might be a consequence of mishandling of financial assets in early life. But that is not necessary in every case. However, it is not something bad to consider. If you are in need, reverse mortgages can prove to be a beneficial substitute for any other income source.

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