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The reverse mortgage is exactly what it sounds like. Instead of you making payments to a lender, the lender makes payments to you. While that may sound fantastic, the similarities pretty much end there. The reverse mortgage is based on the equity in your home. Every time the lender makes a payment to you, it gets a bit of your equity. This equity is held as debt like in a traditional mortgage and interest is charged on the amount. The first issue that arises with this program is the issue of finite equity. Practically speaking, what happens if you outlive the equity in your home? Does the lender take over the home and kick you to the curb? In the past, the ugly answer is that you would lose the home. Since senior citizens sitting on a curb did not go over well, the government stepped in. Most plans now allow you to stay in the home even if the equity is used up entirely. Another common question is how big will the monthly payments made by the lender be? There are a number of factors that go into the determination. These include the amount of equity in your home, the interest rate charged on the loan, the costs and the fees. Finally, the biggest factor is the particular plan you choose. You will have a choice of different options that produce different payments and so on. The situation is similar to the one in which you decide upon a mortgage for a home you buy. So, can you change your mind and go in a different direction? Yes. In doing so, however, you have to either sell your home to pay off the reverse mortgage or simply pay it off outright. Another issue that arises is appreciation. What happens if your home appreciates over time? Can you get at the new equity? In most cases, you can. Whether this has to occur through a refinance or a modification to the reverse mortgage is a case by case decision. So what happens when you reach the end of the line? In such a situation, the home is handled just like one with a traditional home loan. Your heirs will either sell it or come up with the money to pay off the reverse mortgage. The reverse mortgage is often touted as a great way to pull income from real estate. In truth, it is a very expensive method for doing this and there are better options. Make sure to speak with a financial advisor before going this direction. Article Source: http://www.articlewheel.com
Barry Waxler is a financial advisor with UFCAmerica.com.
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