A home loan that you do not have to pay back for as long as you’re
alive or for as long as you live there? That sounds too good to be
true, but that’s what reverse mortgages do.
A reverse mortgage is a loan that you make where you do not have to
pay back anything for as long as you still possess that property you
have purchased. Reverse mortgages provide you with cash which you
can use for other investments. By turning the value of your home into
cash, reverse mortgages gives you virtually unlimited funds without
having to move and even without repaying the loan every month.
There are several ways to give you the cash from reverse mortgages.
You can get cash from a reverse mortgage all at once or in a single
lump sum. With a reverse mortgage, you can also opt to receive a regular
monthly cash advance.
In addition, a reverse mortgage can offer you cash as a “creditline”
account. This creditline account from a reverse mortgage will let
you get the amount of money you want whenever the need arises. And
if none of these methods suits you, reverse mortgage cash may be given
to you using any combination of the abovementioned methods.
Whether or not you want your cash from a reverse mortgage be paid
to you in lump or in installment, the main thing is that you do not
have to pay anything back until you die, sell your home, or permanently
move. Reverse mortgages usually cater to homeowners who are 62 years
old and older.
Reverse Mortgage vs. Other Home Loans
In most other loans, a systematic check on your income and assets
is done in order to pre-qualify for the mortgage. This is done as
an assurance to the lender that you will be able to afford the monthly
payments tied with a loan. Since reverse mortgages do not involve
any monthly payments, you not have to go through these tedious prequalification
procedures. Qualifying for a reverse mortgage is easy and hassle-free.
There is no minimum income required and no monthly repayments. And
what’s more, with a reverse mortgage, you do not stand the chance
of losing your home.
"But it is a pretty thing to see what money will do!”
- Lucius Annaeus Seneca
The downside to a reverse mortgage
In every story, there is always the other side of the coin. While
reverse mortgages have their advantages, they also have a downside.
As you know already, reverse mortgages do not require monthly paybacks.
This means that with reverse mortgages, you are actually taking out
equity from your home and turning it into cash. This does not bode
well for your debt or your home equity for that matter.
Here’s how it works. Other mortgages require a person to make a down
payment when buying a home. As years go on, they use their income
to pay back the money they borrowed in making the purchase. This decreases
their debt and increases the value of their home.
With a reverse mortgage, everything works in the reverse. You have
your home. You convert its value into cash. And then you take out
that cash every now and then, thereby increasing your debt and reducing
your home equity.
Of course, this is not always the case with reverse mortgages. If
your home value grows rapidly or you only one loan on your home, there’s
every chance that your equity could increase over time.
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