What Does Reverse Mortgage Means and How Does It Work?A reverse mortgage is, in a nutshell, a loan.A 62-year-old homeowner with significant home equity can borrow against the value of their property and receive funds in the form of a lump sum, a fixed monthly payment, or a line of credit.A reverse mortgage, unlike a forward mortgage, which is used to purchase a home, does not require the homeowner to make any loan payments.Instead, when the borrower dies, moves out permanently, or sells the house, the entire loan debt becomes due and payable.According to federal regulations, lenders must structure transactions so that the loan amount does not exceed the home's value.
The borrower or borrower's estate will not be held liable for the difference if the loan total exceeds the home's value.A decrease in the home's market value is one way; another is if the borrower lives a long time.
The Equity in Cash For seniors whose net worth is mainly related to the value of their property, reverse mortgages loans might provide much-needed cash.On the other hand, these loans can be costly and complicated, as well as vulnerable to fraud.This article will explain how reverse mortgages operate and how to avoid the problems so that you can make an informed decision about whether a reverse mortgage is good for you or your parents.
According to the Reverse Mortgage Lenders, in the first quarter of 2019, homeowners aged 62 and over had $7.14 trillion in home equity.This figure has been high since the survey began in 2000, demonstrating how vital home equity is as a source of wealth for retirees.Home equity can only be used if you sell and downsize your home or borrow against it.Reverse mortgages can help retirees with limited income and assets.
With a reverse mortgage, homeowners may turn their home equity into cash income without making monthly mortgage payments.
Although most reverse mortgages are federally insured, there has been a recent rash of reverse mortgage frauds aimed at the elderly.