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By Juhlin Youlein
We have all heard of a mortgage, but few of us understand what a reverse mortgage is. Reverse mortgages are a concept that were born in the 1960’s and have evolved over time into many different forms. The current form of reverse mortgage is just starting to hit the main stream. A reverse mortgage has often been looked at in an unfavorable light by people in the media and the famous financial planners of the day. The truth is reverse mortgages have become a popular form of financial freedom for retirees, even thought the real thing happening is the retiree is losing a source of security from it.
A reverse mortgage is a form of financing that taps into the equity in ones home and pays out the value of the home without a monthly inflow. In order to qualify for a reverse mortgage the home must be completely paid off. The money can come all at once in a big lump sum or more commonly is paid out on a monthly basis. The bank or lending institution is almost effectively buying back a percentage of the homes equity.
The reverse mortgage does have some great benefits. The funds that come in are completely tax free, the money has a liberal repayment plan, the lender eats most of the risk. These loans are pretty much made with the idea that the household receiving the funds wants to live in the home until they pass away.
Those who have paid off the home and think that it would be nice to take the money out and invest it are making a poor decision. Homes provide security and comfort both because of the reality of a home and the financial security they offer. If a person has their home paid off and then decides to take the value out of it to try and make a wise investment they are foolish as the interest the lender will charge will most likely eat away any return on the investments.
If the estate is a nice estate, and the owner wants to or plans on passing the estate on to their children they should not do a reverse mortgage as the heirs will inherit the debts of the estate and most contracts claim control of the estate after the borrowers pass away.
If the borrower is too ill to upkeep the estate, they might be dissuaded from doing a reverse mortgage as the lender will reserve the right to foreclose on the property if they deem it un-sellable or if the property value drops too low. This is the scariest clause of a short sale because often it is retirees who are short selling and they are already living off of a fixed income and cannot hire out a handy man to come make repairs and are no longer able to do the work themselves and then they lose the home that was otherwise completely paid off.
In the end, a reverse mortgage is a smart ploy by a bank to find a way to purchase a property with no interest and to be able resale it a higher price once the home is void of anymore equity. Therefore the reverse mortgage is only a good idea to those who plan on living in their home until they die and are not planning on leaving the estate to any of their children.
About the Author: Juhlin Youlien writes about
Gilbert AZ homes for sale
and
Paradise Valley AZ homes
and other real estate like
Chandler real estate
and
Fountain Hills AZ homes for sale
.
Source:
isnare.com
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