How Does a Reverse Mortgage Work? [mortgageinsuranceguide.blogspot.com]
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If you are older and own a home without a mortgage, but need some cash for whatever reason a reverse mortgage may be an option. As you look at the various options available to you a question that may cross your mind will be how does a reverse mortgage work?
Reverse mortgages are also known as an equity release plan. Many folks commonly ask what is a reverse mortgage, though the answer is quite simple. Simply put reverse mortgages are where an amount is borrowed and is secured against your home. Interest accrue on the loan amount until you die or sell the house and that interest is added to the loan. The need to repay the loan is actually deferred until the borrower's death or if the house is sold - so there are no regular repayments.
The amount able to be borrowed will be restricted to a certain percentage of the house value. This value will be scaled so the younger you are the less you will be able to borrow.
The lender has his security or safety measures in the fact the amount borrowed is usually low in comparison to the value of the home.
With reverse mortgages you have the option of getting the money in one of three ways.
A lump sum when the contract is settled, a series of payments as per a contract schedule or as a line of credit where you can with draw money as you need it. This should answer how does a reverse mortgage work, but be sure to consider costs. Reverse mortgage closing costs can be extremely high.You can borrow only the amount you require and interest is calculated only on the borrowed amount. It is common that that interest rate on these loans is different to that of a traditional mortgage, but it does allow you to access money locked up in the value of your home, without having to sell the home.
The remaining house equity is maintained for any heirs you have. More How Does a Reverse Mortgage Work? Issues
