Reverse mortgage is a new kind of loan extended to people aged 62 years and above, those who own homes.
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Understanding a Reverse Mortgage
Reverse mortgage is a new kind of loan extended to people aged 62 years and above, those who own homes. The mortgage is extended against the value of your home. Unlike other loans, you aren't required to pay the loan until the day you move out of that house, either when you're dead, or when you sell the house. The loan can be repaid in various ways either by disbursing a single lump some amount, regular monthly advances or using a credit line account where you decide how much you will be paying.
Unlike other loans where you're required to have a viable income source which you should show proof with legal documents, so that you can verify your ability to pay back the loan on a monthly basis, reverse mortgage doesn't require monthly repayments, neither does it require you to have an income proof, actually, you need not have any source of income as long as you're eligible for the mortgage.
With other kinds of mortgage, chances of losing your home incase you fail to remit your monthly allowance are very high, but it never occurs in reverse mortgage because reverse mortgage in most cases doesn't require a monthly remittance as long as you are still in that house. This reason is what makes reverse mortgage different from other kinds of loans and mortgages, thus making it a good choice compared to the rest.
Note that when dealing with reverse mortgage, the debts increases as the home equity decreases. Once you get the cash, since you'll not be making any repayments, the debt amount will increase since the interest will be added on your existing loan amount balance and eventually the equity will decrease as the debts increase, this is not unless the home value increases. If the home value depreciates, there wont be any equity left apart from the loan amount thus you'll actually be spending your home equity as you continue living in your home, and above all, you'll not be making any repayments.
Note that reverse mortgages have an exception i.e. when the loan advance is extended without any interest charged on it. This would mean that the debt will not change and by it remaining the same means that the home equity will keep growing as the home value grows. Luckily, home value is known to grow at a very slow pace and the interest rate is normally charged ultimately so in most cases, reverse mortgages will end up with escalated debt loans and fallen home equity.
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