By Eddie Tobey |
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A reverse mortgage, also called a conversion mortgage, allows
homeowners to pledge the equity value of their home and derive an
income out of it. Reverse mortgage loans are available to
individuals over 62 years of age. These loans help homeowners meet
some immediate cash requirements while residing in their own home.
In a regular mortgage, the property holder pays the bank monthly
payments. But in a reverse mortgage, the lender makes payments to
the homeowner.
There are no restrictions on how one can use
the profits. The payments you get are tax-free. People generally
utilize reverse loans to complement retirement funds, upgrade
houses, take vacations, pay off other debts, or even prevent
foreclosures. In case the applicant wants to shift to a different
place within the first 5 years of the loan term, reverse mortgages
can become very expensive.
The major categories of reverse
mortgages include federally insured reverse mortgages,
single-purpose reverse mortgages, and proprietary reverse mortgages.
The first type is insured directly by the federal government, and
the last two are provided by groups licensed by the government, and
banks or private financial mortgage lending organizations. Each type
has different advantages and disadvantages that need to be measured
while applying for a reverse mortgage.
A single-purpose
reverse mortgage, the lowest-cost type of reverse mortgages to
attain, can only be used for one specified purpose. Examples include
property tax deferral (PTD) mortgages and deferred payment loans (DPLs).
A federally insured reverse mortgage, also called a Home Equity
Conversion Mortgage (HECM), provides the largest total cash benefits
of all the reverse mortgage options. A proprietary reverse mortgage
is more expensive than other types, and its major benefit is the
higher home value limits.
A reverse mortgage offers financial
security while you enjoy the comfort of your home after retirement.
However, these long-term mortgage plans must be selected with utmost
care. The companies and lenders which handle regular and multiple
mortgages provide reverse mortgages. Customers can purchase the loan
either as a lump sum or a credit line. Before selecting a plan, it
is wise to consult a financial advisor who can provide you an
insight on the pros and cons of a reverse mortgage. |
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