Many people, especially retirees, may have heard all about reverse mortgages. They have an idea but do not really know how it can help them when they need it. For retirees who would want to know more about it and wonder how it works, here is the basics of what a reverse mortgage is.
A reverse mortgage may be considered as a type of loan where a homeowner borrows against the equity of the home. Unlike any other loans, this type offers a possible benefit ideal for most retirees. In a reverse mortgage, the arrangement usually would be that the property will be turned over to the lender once the homeowner passes on, in lieu of loan payments. Reverse mortgages requires certain qualifications that cater to seniors. This type of loan is offered to homeowners who are retirees or those above 62 years of age who are looking for additional sources of income aside from their retirement fund or pensions.
In a reverse mortgage, the lender offers payments to the retiree or senior borrower on a regular basis instead of the other way around as in a typical mortgage loan, hence the term “reverse”. The payment is based on the current home equity and appraised value of the home. A reverse mortgage is beneficial to retirees and senior homeowners who avail of the loan. One known benefit is that they do not have to pay the loan back as long as they continue to live in the home. The reverse mortgage is only paid for when a senior homeowner passes on, at which time the lender assumes the right to the home in order to sell it. This way, the lender can recover the loan payments previously extended. But there is also another option available for the homeowner for loan repayment. The reverse mortgage can also be repaid when the retiree homeowner decides to sell the home before he or she passes on.
A reverse mortgage provides seniors and retirees with an option to take advantage of their home equity as a possible source of income during retirement. At their age, retirees may require additional income to address certain health conditions that they can no longer afford with just their current pensions. A lot of seniors may have real estate properties but it will not provide them with immediate cash when they really need it. A reverse mortgage on their home helps give them the means to obtain additional money without the burden of paying for it even while they reside in it. A reverse mortgage is also a viable option for retiree homeowners to help supplement a dwindling retirement income.