What Is A Reverse Mortgage?
Reverse mortgage loans came into being around 30 years ago to make some arrangement in which retired senior citizens will get some cash to use and enjoy in their sunset years. While a lot has changed ever since the idea was first implemented, especially regarding the attitudes of the beneficiaries and their families, the same concept still remains and today, seniors get the opportunity to live their lives to the fullest.
The main idea behind reverse mortgages is to make available money in form of cash from the home equity accrued over time, justifying the reason why it is only targeted to retired senior citizens who are real owners of the property they live in, a property that has accumulated enough equity. A reverse mortgage loan is a long-term commitment and you will not be expected to pay the mortgage lender anything until the loan term expires. Note that even if you have a mortgage loan already, you can leverage the home equity accrued and use the reverse cash payments to pay the mortgage loan.
Basically, the main source of money is your home equity, which also happens to be the only guarantee for the new loan that you are taking. What this therefore means is that you can borrow up to a certain amount equivalent to the accrued equity. There is no credit score or income proof needed to qualify for a reverse mortgage, only that you have to be of 62 years and above, you have to be the owner of the home, and you have to live in that house for at least 6 months every year. It is to be noted that a reverse mortgage is just like any other type of mortgage, it is a loan and if you don’t honor your end of the deal, then you will have yourself to blame.
The loan capital and all costs involved will eventually be paid back upon the closure of the loan, which happens when you change homes, sell the property or eventually bow down and give way to death. At such a juncture, your mortgage lender will sell the house and use the money to pay the payments. In case the selling price will not cover the entire amount, the compulsory mortgage insurance will take care of the difference.
Of equal importance to note is that all the payments you get are tax free. This is obvious seeing as it is you would have paid taxes from your income with which you used to pay the normal mortgage payments that you made diligently to now form part of the home equity.