As you head into your retirement years, you need to figure out how to generate income. Reversing your mortgage is one option that has become popular, but is also very controversial.
The reverse mortgage is a form of negative amortization, but with a favorable side effect. While you make payments to a lender with a traditional home loan, the lender makes payments to you with a reverse loan.
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.
A thought that may have popped into your mind is what ultimately happens when the equity in the home is used up? If there is no equity, do you still own the home? Are you expected to pay off the loan? Do you get evicted?
When the equity ran out, the very first reverse mortgages often had clauses that allowed the homeowners to be removed from the property. Yes, it was ugly. Most current programs allow you to remain in the home, but read the fine print of yours.
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.
At some point in time, you might realize a reverse mortgage is not for you. Can you get out of it? Generally, you can so long as you pay off the mortgage debt. Make sure to read the loan documents for language on this issue.
Real estate is beautiful because it appreciates most of the time. After getting a reverse mortgage, can you still tap this appreciation? The answer is usually yes, but you may have to refinance the property to do so.
If the program works well, you will pass away before the equity in your home runs out. Odd to say that, but it is true. At that time, your home will pass to your heirs who will either pay off the mortgage or sell the home.
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.