Different Mortgages

Recently, there has been a surge in interest in getting a reverse annuity mortgage. This type of mortgage makes it possible for senior homeowners to slowly take out the equity in their home. With a reverse annuity mortgage, they no longer have to put their house on the market just so they could collect on their equity. Neither do they have to apply for a traditional home equity loan.

This mortgage type isn’t for every homeowner, though. A homeowner must meet a few requirements. For one, a homeowner needs to be 62 years old or older. The home must be paid off and its value worth more than the amount of the reverse mortgage. The home shouldn’t have other mortgages or liens.

Homeowners who choose to go with a reverse annuity loan can either receive payment monthly or be paid in one large lump sum amount. Payments to homeowners are recurring since the mortgage is an annuity.

This mortgage type is known as a reverse mortgage because of how things are done — in reverse. In a traditional mortgage, homeowners pay down the loan until they completely pay it off. The longer they live in the home and pay the mortgage, the less money they owe. It’s the exact opposite with a reverse mortgage. Rather than paying money, a homeowner gets to receive money for however long the arrangement is. In essence, the monthly payment is how a homeowner is taking out their home equity.

As people get older and their job prospects grow dimmer, it becomes harder to pay their monthly expenditures. This is particularly true if there are medical conditions that require people to be under the care of a doctor, be on medication, and even undergo expensive procedures. Those monthly payments the homeowner receives via a reverse mortgage loan can make a huge difference, providing them with money that they desperately need.

Another reason a homeowner might want to obtain a reverse mortgage loan is to get the equity out of a home they don’t plan on moving out or selling. Rather than letting their equity sit there or go to someone else, older people are better of being able to enjoy the money from the equity they’ve built on their home. This might be especially true of those who don’t have any surviving family members.

What are the reverse mortgage pros and cons? Let’s take a look.

Pros:

* It offers homeowners a way to benefit from the equity they’ve built for their home.

* Homeowners can remain in their home. They can collect the equity without having to put their home on the market.

* Homeowners on a limited budget have supplemental income.

* Homeowners don’t have to worry about their Medicare or social security benefits being affected.

Cons:

* Homeowners must be 62 years old.

* Homeowners will have to repay the loan balance as they borrow against their equity.

* There are fees involved: closing costs, origination fees, and service charges or insurance premiums.

* If homeowners fail to pay property taxes, don’t maintain their home, neglect their insurance payments, or fail to repay the money they borrow through the annuity, the home can be defaulted.

There are advantages and disadvantages associated with a reverse mortgage. For the right person and under the right circumstances, a reverse annuity mortgage can be a good thing.