A red hot loan package that is getting a lot of attention these days is the reverse mortgage. Common question arise regarding the loan, so let’s take a closer look.
The reverse mortgage is exactly what it sounds like. Instead of you making payments to a lender, the lender makes payments to you. While that may sound fantastic, the similarities pretty much end there.
Equity. The reverse mortgage equity loan is all about equity. Every payment the lender makes to you is in exchange for a slice of the equity in your property. Unlike your traditional home loan, the balance due on the loan goes up.
The number one question regarding reverse mortgages has to do with equity. Specifically, what happens if the equity is all used up before the borrower dies or the home is sold? Do you lose the home, get foreclosed on or what?
When the equity ran out, the very first reverse mortgages often had clauses that allowed the homeowners to be removed from the property. Yes, it was ugly. Most current programs allow you to remain in the home, but read the fine print of yours.
Considering you are giving away a big chunk of your nest egg, you should get some sizeable payments, right? Well, maybe. There are a lot of factors involved. These include the dollar value of your equity, your age and so on.
While you should be concerned about how the payment is calculated, it is important to understand there is an easier way to determine it. Just ask to see examples. Multiple programs are available and they should show you the estimated payment amounts.
So, can you change your mind and go in a different direction? Yes. In doing so, however, you have to either sell your home to pay off the reverse mortgage or simply pay it off outright.
Real estate is beautiful because it appreciates most of the time. After getting a reverse mortgage, can you still tap this appreciation? The answer is usually yes, but you may have to refinance the property to do so.
If the program works well, you will pass away before the equity in your home runs out. Odd to say that, but it is true. At that time, your home will pass to your heirs who will either pay off the mortgage or sell the home.
The reverse mortgage is often touted as a great way to pull income from real estate. In truth, it is a very expensive method for doing this and there are better options. Make sure to speak with a financial advisor before going this direction.