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How A Reverse Mortgage Works

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  • Brad Stroh
    Message 1 of 1 , Nov 1, 2006

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      Please consider this free-reprint article written by:
      Brad Stroh

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      Article Title: How A Reverse Mortgage Works
      Author: Brad Stroh
      Word Count: 811
      Article URL: http://www.isnare.com/?aid=91748&ca=Finances
      Format: 64cpl
      Author's Email Address: brad[at]bills.com (replace [at] with @)

      Easy Publish Tool: http://www.isnare.com/html.php?aid=91748

      ================== ARTICLE START ==================
      Ever wonder how a reverse mortgage works? For folks that have
      lived in their home for a long time, they may very well be
      sitting on a gold mine. Home prices have increased greatly over
      the last thirty years, and nationally have nearly doubled in
      value over the last ten years. This has left a great many
      homeowners with valuable equity in their homes and many
      different options to access that equity, home equity loans and
      mortgage refinances being the most common. For older Americans,
      there is another, less common option that is growing in
      popularity as home prices have increased and baby boomers have
      moved closer to retirement age: the reverse mortgage. But do
      you know what it is, and do you know how a reverse mortgage

      So what exactly is a reverse mortgage? A reverse mortgage is a
      loan product that allows homeowners 62 years of age and older
      to use their equity to generate tax-free income, without having
      to sell the home or take on a new mortgage payment. In fact the
      reverse mortgage is exactly what the title states, the reverse
      of a standard mortgage. With a standard mortgage, the borrower
      (or homeowner) makes monthly payments to the lender (or bank or
      mortgage company), in order to pay back the loan that the lender
      originally lent to for the purchase or refinance of the house.
      This payment includes interest that the lender charges the
      borrower for the loan. In a reverse mortgage, the situation is
      reversed; the lender makes monthly payments to the borrower.
      However, in both a standard and reverse mortgage, the lender
      secures their loan amount by using the house as collateral.

      There are a few factors that determine how much money a
      borrower will receive from a reverse mortgage, such as the
      value of the home, borrower�s (and co-borrower�s) age, current
      interest rates and any lending limits that may be standard for
      your geographic area. As a rule of thumb, the older the
      borrower and the more valuable the home, the larger the
      available loan amount. Homeowners can choose how they want to
      receive their payments, either as a lump sum, monthly payments
      or as a line of credit. The line of credit is the most popular
      option, with nearly 60% of reverse mortgage borrowers choosing
      to the option to draw income or a lump sum off the line at the
      time of their choosing. And the proceeds from the reverse
      mortgage can be used for anything, completely at the discretion
      of the borrower, though most borrowers use the funds for home
      repairs or modifications, health care expenses, to settle other
      debts, or for their long-planned vacation! Reverse mortgages are
      available for nearly all property types with the exception of
      co-ops, though co-op owners in some metropolitan areas,
      specifically New York, should have local options. If you are in
      retirement, or nearing retirement, and think this may be the
      product for you, I will go into more detail about exactly how a
      reverse mortgage works.

      For reverse mortgage borrowers with an existing mortgage, that
      mortgage will need to be paid off completely, so that the new
      reverse mortgage will be the only lien on the house. If the
      proceeds from the reverse mortgage are not ample to pay off the
      existing mortgage, the borrower will need to access savings or
      other sources to pay off the rest of existing mortgage amount.
      In this scenario, the borrower won�t have access to any
      additional funds from the reverse mortgage; however, they will
      no longer have a mortgage payment! The more common scenario is
      one in which there is a small or no mortgage on the home and
      then the borrower is able to access nearly the full amount of
      the reverse mortgage to use at their discretion. No monthly
      payments are due on the loan and the loan is repaid when the
      moves or sells the home, passes away, or ownership otherwise
      changes hands. If the home is sold and the proceeds of the sale
      exceed the mortgage amount, the balance belongs to the borrower
      or their heirs.

      One very important facet of the reverse mortgage process is the
      consumer counseling that is required for borrowers contemplating
      a reverse mortgage. Your lender can help you find counseling
      agencies and most programs are approved and monitored by HUD
      and/ or AARP. The counseling is required to make sure that the
      terms and risks of the program are clear to you. Counselors are
      obligated by law to review with you all of the implications of
      the new mortgage, and what your potential options are.

      Overall, for older Americans contemplating a stress-free
      retirement, the reverse mortgage may be just the option! Just
      make sure that you know your options and goals� and how a
      reverse mortgage works.

      About The Author: Brad Stroh is currently co-CEO of Freedom
      Financial Network and http://www.Bills.com If you would like
      more of Brad�s http://www.Bills.com/sitemap/, please visit the
      Bills.com information on http://www.Bills.com/mortgage/.

      Please use the HTML version of this article at:
      ================== ARTICLE END ==================

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