Reverse Morgage: Converting Your Equity to Instant Cash

2007-03-08 10:33:40

( Financial )



Many think of applying for a reverse morgage to fix their homes, pay for their medical expenses or add to their retirement income. A reverse mortgage is a type of tax free loan is taken from a portion of your home equity.

For one to qualify for a reverse morgage, one or both (if there are two owners to the home) need borrower/s to be at least 62 years old and live in the home. The borrower/s must be an owner of a single home, condominium or a 1-4 unit complex for which one unit is occupied by them. One does not need to be employed; Medicare and Social Security benefits are not affected.

Factors to consider regarding reverse mortgages are:

You keep your home and pay the property taxes and insurance on it.

There are various fees that need to be paid once the loan is granted; you can however choose to add this to the balance of the loan and pay it back with the interest when the loan becomes due.

The amount of loan that will be granted will depend on the age of the borrower/s: the higher the age, the higher the chances of obtaining a bigger loan amount; the age of the property; the market value of the property (the higher the value, the higher the loan amount) less any existing equity and the current interest rates.

If you have any debts against your property, you should pay off the existing debt before obtaining a reverse mortgage. Some companies will grant you the reverse mortgage just the same, for as long as you use the some of the existing amount granted to you to pay for your old debt first.

There are no monthly payments involved in a reverse morgage (although one can also opt to pay monthly to reduce the total amount due). The loan becomes immediately due when the last surviving borrower passes away. The entire amount plus its interest must be paid by the heirs of the borrower/s. Non payment of property taxes and home insurance, not maintaining the home properly, declaring bankruptcy, moving to another home, subletting the home, adding a new owner to the house title or taking a new loan are also reasons for the loan to become immediately due.

Lenders charge certain fees and costs as well as service fees during the term of the reverse mortgage.

Interest is charged monthly on the mortgage amount and therefore the money you owe increases whenever any money is advanced to you. The interest charged cannot be deducted from your income tax return until you have fully or partially settled your loan.

Reverse mortgages can still be cancelled within 3 business days of obtaining the loan. Notice should be given in writing and delivered by hand, mail, fax or telegram.

More information can be obtained on the internet by looking for reverse mortgage information or looking into Wells Fargo reverse mortgage or Liberty reverse mortgage.


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