Reverse Mortgages: How to Cash Out Profit While Still Staying at Your Home
While real estate can certainly be a great investment, many homeowners
have ended up in the situation of having nearly their entire net worth
tied up in the roof over their heads. While having lots of equity in a
valuable home is nothing to sneeze at, it can be difficult to tap that
equity for your everyday needs.
Fortunately, those retirees who are house rich but money poor may be
able to take advantage of the power of the reverse mortgage to get the
money they need for living expenses today while allowing them to remain
in their homes for the rest of their lives.
A reverse mortgage is a special type of loan which allows homeowners
aged 62 and older to tap the money in their homes, while at the same
time being assured that they will never have to move out of the home or
pay the money back.
The reverse mortgage is in essence the exact opposite of the traditional
mortgage. When borrowing money to buy the home, those monthly payments
are designed to slowly chip away at the loan amount and build up equity.
A reverse mortgage on the other hand, gradually reduces that equity
while increasing the amount of debt on the home. The good news is that
the bank does not collect on the principal and interest owed until the
home is sold, either by you or your heirs.
Reverse mortgage remain only a small part of the overall mortgage
market. But as home prices have risen, the interest in reverse mortgages
has risen as well. These days, retirees have many more choices when it
comes to housing and lifestyle. More and more retirees have been taking
advantage of a reverse mortgage to enhance their quality of life.
There are many good reasons why a homeowner would want to take out a
reverse mortgage, but it is important to understand the rules, and to
understand how these special loans work.
In most cases it will be possible to withdraw about half of the home's
value. For instance, a homeowner who is age 70 should be able to realize
about $113,000 on a home with a value of about $200,000, and that should
net a monthly payment of roughly $700 per month for life.
Of course, the amount that can be borrowed will vary and it is determined by four factors, including:
For instance, younger homeowners will qualify for a smaller loan due to
their longer life expectancy, while older homeowners will be able to
borrow more and enjoy a higher monthly payment.
Homeowner must determine whether or not a reverse mortgage is the right
choice for their needs. While a reverse mortgage can be a good choice in
many cases, it will not be appropriate for everyone, and it is crucial
to consider the pros and cons when thinking about a reverse mortgage
loan.
Firstly, is to shop carefully for a reverse mortgage loan, just as you
would shop carefully for a traditional mortgage loan. There are a
growing number of lenders who specialize in reverse mortgages, and
shopping around will get you the best price for the equity in your home.
When it comes to choosing a lender, most financial experts agree that it
is a good idea to choose one who is affiliated with the
National Reverse Mortgage Lenders Association.
Secondly, it is important as well for those considering taking out a
reverse mortgage to meet with a counselor before taking out such a loan.
That counselor will be able to clearly spell out both the advantages and
the drawbacks of taking out a reverse mortgage loan.
The AARP
Foundation's Reverse Mortgage Education Project, available at
1-800-209-8085, can provide more information about
reverse mortgages, as well as a list of quality counselors.
Obviously, this reverse mortgages shopping and counseling process can take some time.
Those considering a reverse mortgage should be sure to leave up to three
months for this process. Even though the reverse mortgage process can be
lengthy, it is crucial to remember that the peace of mind a reverse
mortgage can provide will last a lifetime.
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