When The Last Mortgage Payment Is Made, The House Belongs To You

Category: Finance, Mortgages.

Can t remember how many times I ve been asked" What is a reverse mortgage" ? As in all cases of financial lending, the flexibility comes at a price.

Reverse mortgages are a great way to get a loan using your primary asset. A reverse mortgage is a loan using your house and is referred to as a" rising debt, falling equity" kind of deal. To qualify for forward mortgage, you must have a steady source of income. To compare reverse mortgage to a more traditional one, the type of mortgage commonly used when buying a house can be classed as a" forward mortgage" . Because the mortgage is secured by the asset, if you default on the payments, your house can be taken from you. When the last mortgage payment is made, the house belongs to you.

As you pay off the house, your equity is the difference between the mortgage amount and how much you ve paid. On the other hand a reverse mortgage process doesn t require that the applicant have great credit, or even that they have a steady source of income. Generally, there is also a minimum age required as well, the older the applicant, the higher the loan amount can be. The major stipulation is that the house is owned by the applicant. As well, reverse mortgages must be the only debt against your house. Instead of making any monthly payments, the amount loaned has interest added to it- which eats away at your equity.

Differing from a conventional" forward mortgage" , your debt increases along with your equity. If the loan is over a long period of time, when the mortgage comes due, there may be a large amount owed. On the flip side, if it was to increase, this could allow for an equity gain, but this isn t typical of the marketplace. Furthermore, if the price of your home decreased, there may not be any equity left over. When deciding how to draw money from the reverse mortgage, there are a few options. There are conditions in this kind of mortgage that would warrant the immediate repayment of the loan. A single lump sum, or a credit, regular monthly advances account.

The mortgage will be due when the borrower dies, or moves out, sells the house. The lender also has the option of paying for these obligations by reducing your advances to cover the expense. Failure to pay your property taxes or insurance on the home will undoubtedly lead to a default as well. Make sure you read the loan documents carefully to make sure you understand all the conditions that can cause your loan to become due.

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