Monday, September 17, 2012

Characteristics of Reverse Mortgage

By Troy Cooper


A reverse mortgage also referred to as lifetime mortgage is usually a loan, that is offered to senior citizens, who own a residence. They will get this loan only if the property is fully owned by them. Reverse mortgage and a typical mortgage (household loan) are precisely opposite. A typical mortgage is where you are able to borrow the entire loan money in the beginning. Then over a time period the loan is paid back utilizing the EMIs (Equated Monthly Installments). Whereas, within a reverse mortgage you can get a loan in your residence and the bank will divide your loan dollars and will give it to you just about every month like a monthly earnings or pension. The loan quantity also will depend on the age of your borrower i.e., the older you are, the extra cash you might acquire.

Capabilities of Reverse Mortgage

This mortgage is eligible only for homeowners, who are at their retirement age.

Maximum period of this loan varies with banks and countries.

60 percent is definitely the maximum mortgage offered on the total worth with the house.

The cash can either be borrowed in lump or go for annual, quarterly or monthly payments.

For just about every five years (may possibly vary for distinct nations) the home will probably be revaluated either by the bank or by the Housing Finance Business (HFC).

Depending on the floating or fixed interest rates chosen by the borrower, the rates of the loan varies according to market conditions.

This loan will not be liable to tax, because it will not be deemed as monthly income.

This loan does not have any penalty for pre-payment. So, at any time this loan is usually prepaid together with the interest.

The fee for processing the loan varies from bank to bank.

Reverse Mortgage - How you can pay the loan?

The other spouse can continue to live in the house even after the death of the borrower. The bank will provide two options to the heirs after the death of both.

Retain the residential property by settling the outstanding loan.

The bank will settle the outstanding loan by selling the house. The remaining money will be given to the heirs.

This is because, in this mortgage, over a period the loan balance rises as no payments are made. The home value increases faster than the balance of the loan, which results in the continuous growth of the remaining equity.

Drawbacks of Reverse Mortgage

When compared with the other loan forms, entering into this loan is very high-priced. It is actually also said to be very confusing to men and women taking up this loan. The terms and situations of your loan are not fully understood by those entering it and this is becoming taken as an advantage by some lenders. One particular of your main shortcomings of this loan is definitely the compound interest. Each and every month, the calculation on the interest is just not only according to the principal quantity but in addition on the previously assessed interest. Consequently, it really is advised that this mortgage be taken only when there exists no proper flow of revenue to run the household.




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