Reverse Mortgage

Reverse mortgage is a very unique mortgage offered by private lending companies as well as the FHA (Federal Housing Authority) through HECM (Home Equity Conversion Mortgage). This type of mortgage is specifically geared towards those who own their property without any mortgage payment left. This will also be possible for those who still have an outstanding mortgage balance but could be easily paid off by the reverse mortgage.

In this type of transaction, the property owner receives an amount form the lender based on the value of the property, credit rating and even the age of the property owner. At first this sound’s like your regular mortgage. But the difference on reverse mortgage is based on the payment scheme.

The property owner doesn’t have to pay for the loan he or she made as long as she lives. Payment can only start when the property owner has passed away. In regular mortgage, the debtor would have monthly payment or face foreclosure.

This is actually a gamble on the part of the lender since the owner might live there for decades. That is why reverse mortgage is only offered to those who are aged 60 years old and above.

Advantages of Reverse Mortgage

• Funds more than enough for retirement - If the property owner does not have any outstanding balance in their property, they could enter into agreement with reverse mortgage and use the fund to retire. Some even opted to purchase another property in their favorite vacation destination. They are practically selling their house without actually leaving the property.

• Better payment plans – the interest rate in reverse mortgage are usually within the range of 5% - 6% depending on the age of the property owner, and the property itself. But there are reverse mortgage that are a lot lower than these mentioned rates.

Disadvantages of Reverse Mortgage

• Heirs having trouble for payment – reverse mortgage means you only have to pay for the loan you made when you pass away. This means the property you live in right now is not yours but by the lending institution. If your heir doesn’t have the financial means to pay for the mortgage, he or she may lose the property permanently.

• Accumulation of loan – getting yourself tied to reverse mortgage is very difficult for your heir especially if you took advantage of reverse mortgage if you have just retired. Although the payment for mortgage only starts when the owner pass away, the interest rate starts from the first day they receive the funds.

Two Types of Reverse Mortgage

• Fixed – in this form of transaction, the property owner will enjoy a fixed rate when the payment commences. The property owner will also receive the lump sum amount of the property. Although this sounds good, the interest rate will start to pile up since day one.

• ARM – this for of financial transaction is better in terms of interest rates since the interest rate will be based on the money you receive monthly. Since you only receive the amount on a monthly basis the interest rate is not as big as the lump sum amount. But still, this form of interest rate could go up or go down.

Contacting HECM

Although there are hundreds or even thousands of lending companies interested in dealing with for your property, the government assistance is still one of the best options in terms of interest rate. HECM accepts those who are already 62 years old and have little to no mortgage payment left.

Reverse mortgage is one of the best options a property owner would have. Although it is only eligible for the elderly, knowing this option is recommended as this would be useful in the future of the heir and the present standing of the elderly.