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Reverse Mortgage: What You Need To Know About It

By: HAROLD GROVES

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What is Reverse Mortgage?

A reverse mortgage is a lifetime mortgage loan which is popular among the senior home owners or the senior citizens. It is just the opposite of an ordinary mortgage such as a home loan.

How does it work?

In an ordinary mortgage the owner has to borrow a lump sum of money or keeps a valuable thing to get some amount of the money, after which the person has to pay a monthly interest. After a given period the owner has to pay back the principle by giving away the Equated Monthly Installments (EMIs).

Whereas this is not the same in a reverse mortgage, you can work on a property that you already have without any existing loan related to it. Instead of this the bank gives you a continuous flow in the cash for a limited tenure. This can be considered as reverse EMIs.

In case of reverse mortgage the owner of the house is allotted an annuity for nearly 15 years till his demise this can occur later than the tenure of the reverse mortgage. After the owner’s death the annuity payment stops.

Feature of the Reverse Mortgage

The draft and guidelines of reverse mortgage clearly identifies the following features which could be as any senior citizen who has crossed the age of 60 is entitled to get a reverse mortgage.

According to the value of the residential assets, the owner is entitled to get a loan up to 60 percent.

Banks or housing finance company (HFC) mortgages the property for a maximum period of 15 years.

As per the borrower’s prudence, he is entitled to get a monthly, quarterly, annually, or a lump sum of his payments.

Once in every 5 years the appraisal of the property is undertaken by the bank or HFC.

The amount that is received as reverse mortgage is considered as loan and not considered as income hence it does not attracts any kind of tax liability.

Reverse mortgage rates can be fixed or can be decided according the ups and downs of the market rates. Hence, the interest rates can be selected by the borrowers.

How is loan paid?

There is no payment by the borrower during his life and because of this the term of the reverse home mortgage loan rises. At different places one can see that the value of the home grows at a much faster rate than the loan balance. This is why the remaining equity continues to grow at a series of time.

In case the death of the owner or if the owner decides to sell the home the loan becomes due. It is then the authority of the home is passed to the estate or is proved by a living will. The will or the estate now owns the property or the house, the house is then sold by the beneficiaries and the reverse home mortgage lenders are paid the loan while a portion of the equity is kept by the beneficiaries.

Article Source: http://depositarticles.com/

We can conclude that a reverse mortgage is allotted to senior citizens to pay away their loans or other form of home equity with an affordable market price.

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