People choose a traditional mortgage to buy or refinance their home. The lender helps you with the money to buy or refinance the home. In return, you will pay back the lender the money you received with interest over many years. A reverse mortgage helps you get cash out of your home. Rather than borrowing to buy a home, you will borrow against a home that you already own. This lets you use the cash for expenses, and pay back the loan when you leave the world or sell the home.
Reverse mortgages are offered to homeowners who are looking to access their home equity. But to get a reverse mortgage you must be at least 62 years old and have cleared, all, your mortgage.
Reverse mortgages will not ask you monthly mortgage payments. The interest and fees on the mortgage will be included in your loan balance each month. In this way, your home equity will reduce as your loan balance increases.
If you are looking to downsize or move closer to family and you are thinking to purchase a new home, you can choose a reverse mortgage. But you would be asked to pay a higher down payment than with a traditional mortgage. The only thing you would like with this type of mortgage is no monthly mortgage payments.
Preference and Understanding
Before you borrow against your house, know well how the loan works. To test if you understand the loan, share it with your friend or family member in your own words to get a feedback. Think twice when considering a reverse mortgage. There are many factors you need to look into, including your age, your financial status and goals, and how long you want to stay in the house. If everything is fine to take out the loan, know all the fees and compare interest rates before you sign anything. For this, talk to a reverse mortgage counsellor.
People usually look forward to traditional mortgage loans in order to finance their home purchases. The requirements of these mortgage loans are understandable and comfortable in fulfilling them.
In contrast, reverse mortgage loans are very less common. The features are not easily under stable. In fact, traditional mortgages and reverse mortgages have more in common. The only thing is that reverse mortgage loans carry few different features for seniors looking to enhance their financial situation.
Reverse mortgage loans offer some advantages that can help senior borrowers in ways that traditional mortgage cannot.
Reverse mortgage loans are designed to specifically help seniors. The repayment of the loan is deferred. This means that in a reverse mortgage there are no monthly mortgage payments. Borrowers are responsible for paying property taxes, insurance, and maintenance. Or else the loan can become due in full, compelling the homeowner to grow capital from friends and family or sell their home and leave from the present location. Even when the homeowner lives longer than thought or the house value sinks the person getting a reverse mortgage will not owe more than their house value.