23 Aug How Does a Reverse Mortgage Work – What You Need To Know
Of all the different age groups that are eligible to take out some form of financial aid, it is the senior citizen age group that requires the most financial assistance yet have the least amount of options. This is because a majority of those within this age group have already retired and only rely on their savings and pension as a source of funds to help them live out their remaining years. Through the introduction of the reverse mortgage, senior citizens have now been given the opportunity to get the financial aid that they need for medical care, home improvement among other financial aids.Still unknown to many, this retirement method is helping senior citizens by eliminating their monthly mortgage payments and putting money in their bank account
This has been made possible because unlike traditional forms of mortgages and loans available in the market, reverse mortgages are exempted from any tax obligations, and the responsibility of the payment falls on the financial institution or creditor. Senior citizens who have been granted a reverse mortgage are not required to make any form of repayments to the financial institution or creditor for as long as one or both senior citizens remain to live in the home whose equity has been used.
If you are considering taking out a reverse mortgage, there are a few requirements you would need to present when you go to a creditor or financial institution. Here are the requirements that you would need.
The reverse mortgage is available only for individuals who are at least 55 years and above. Once it is proven that both spouses are at least 55 years of age and above, both will become eligible to take out a reverse mortgage.
The equity value of your home is its fair market value minus any existing loans that you may have taken out. To get the home equity value of your property, you would need to attain the services of an appraiser. For your home equity to also be eligible, you must be in ownership of a permanent type of property such as a single house, an apartment or condominium. If you live in a mobile home or a trailer, you would not be able to qualify for a reverse mortgage.
Home Equity to be Applied Must be Primary Place of Residence
If you have been fortunate enough to be able to purchase a vacation home, you would not be able to use this towards the reverse mortgage. This is because the reverse mortgage can only utilize the home equity of the house that you have stayed most of your life with, which is your primary place of residence.
Downsides Of A Reverse Mortgage
Even though this method seems like an easy way out, there are still some factors that you may need to consider.Let us look at a few:
Interest: A reverse mortgage is still a loan so that it will accumulate interest over time. However, there are no monthly payments on a reverse mortgage. The amount you have to pay back grows as time goes by, but the loan will not be due until both you and your partner have died or you have decided to sell your home. Even though the amount you have to pay grows, the loan repayment money never exceeds the value of your home.
Complicated: Too many senior citizens, reverse mortgage loans may seem like a complicated process.
Estate Value: The estate value may lower as days go by. This is something that you may need to consider if you plan to leave your property to children.
There is Not Enough Cash To Be Tapped: You may be disappointed to learn that you can only use some your home equity, even if you have a lot of home equity. Even though your home may be worth more, rules evaluate your equity by a maximum home value. However; the actual loan amount will be determined by a calculation using current interest rates, the amount you owe on the home, your age and the appraised value of your home.
How Can You Get A Reverse Mortgage?
It can take you just a few hours to speak to a qualified mortgage broker at Capital Mortgages to request a quote. We can help you understand how Reverse Mortgages work and calculate how much you can get.
As with any major financial decision, securing a reverse mortgage is not to be entered into lightly. All reverse mortgages require you to seek professional counseling to make sure you understand all the risks and rewards of this mortgage product.