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Lately, people everywhere have been touting the merits of a reverse mortgage. What they don't tell you is what a reverse mortgage actually is. So rather than make you run all over the internet looking for data on these newly popular types of mortgage, we wanted to give you a basic overview of what exactly a reverse mortgage is, as well as help you to determine whether one may be right for you.
Comprehending Reverse loans -
The first thing you must comprehend about reverse loans is that they are exactly the opposite of traditional loans. Whereas a typical mortgage requires you to borrow a certain amount to purchase your Townhome, which must then be repaid monthly; a reverse mortgage actually gives you money against the future value of your Townhome, which you needn't pay back until you sell the Townhome.
The traditional mortgage layout is what is known as a "rising equity, falling debt" situation; because, as you pay off your monthly balance, the equity you've accrued in your Townhome rises and your actual debt decreases. With a reverse mortgage, the exact opposite is true. As you take money out of the equity in your Townhome (what the lender actually allows you to borrow against), your debt gains and your equity decreases.
Can you Qualify?
The largest drawback to reverse loans is that not everyone qualifies. In fact, if you are not over the age of 62, and already own your own Townhome, there aren't any lenders who will offer you a reverse mortgage. However, if you are over 62, and you either own your Townhome outright, or owe very little on it, a reverse mortgage may be just the ticket.
The beautiful thing about reverse loans is that they allow you to spend the equity you've worked so hard to build up in your Townhome while you are still living in it. This is fantastic news for anyone living on a fixed income who may need the extra cash to live off of today. Another great thing about qualifying for a reverse mortgage is the fact that, as long as you meet the other criteria of being the right age and owning your Townhome, you don't even have to have an income source at all to be considered.
The largest drawback to a reverse mortgage is the fact that, should something happen to you before you sell the Townhome you have borrowed against, your loved ones may be faced with a rather large lump-sum payment. The idea to get around this, is to sell your Townhome for quite a bit more than you borrowed against it; thereby paying off your reverse mortgage, and allowing you to use the remaining balance to live on or to use as a down payment on another Townhome.
Rick is the writer of Flat Fee Listing. You can find more information at Flat Fee MLS Listing.
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