Good Golly! What is a Reverse Mortgage?
We've seen Robert Wagner on television, and if you are a senior, you are getting solicitations in the mail for a reverse mortgage.
Truth be known most seniors have heard about reverse mortgages but still have very little understanding of what they really are.
So here we are. Here to make this subject clear.
The reverse mortgage is no more than a mortgage on your home. A mortgage lender actually uses the equity you've built up in your home as security for the money they lend to you.
What I just described in the forward mortgage is really no different than the description of a reverse mortage. I want to be clear here in efforts of eliminating all odd ball notions of what it really is.
They are very similar. They just works a little differently.
The mortgage company doesn't really care what the money is used to purchase. It makes money on the interest and servicing of the loan.
The mortgage proceeds may be used to buy a house, to go on vacation, pay off credit card debt, or to pay daily bills.
The home's equity is essentially non-liquid money the owner of the property may use for his own purposes.
The benefit of the reverse mortgage is you do not ever have to make monthly payments to the mortgage company.
Of course that begs the question, "how does the mortgage company make money?" Now we're talking.
The lender simply doesn't make money today. Instead of receiving monthly payments the lender lets interest accumulate on itself. It is the quintessential negative equity mortgage.
Most times the mortgage lender is repaid its loan plus accumulated interest by the sale of the property. Either the borrower dies or the borrower sells voluntarily.
Important to note, because of all myths, is the borrower or it's family never loses ownership of the home during the mortgage.
The real hook to reverse mortgage, which is really helping many seniors in dire financial straights, is the lack of period payment to the lender.
What people must understand is it is not the perfect answer to all financial situations. For example its closing costs can be prohibitively high in the wrong situation.
Truth be known most seniors have heard about reverse mortgages but still have very little understanding of what they really are.
So here we are. Here to make this subject clear.
The reverse mortgage is no more than a mortgage on your home. A mortgage lender actually uses the equity you've built up in your home as security for the money they lend to you.
What I just described in the forward mortgage is really no different than the description of a reverse mortage. I want to be clear here in efforts of eliminating all odd ball notions of what it really is.
They are very similar. They just works a little differently.
The mortgage company doesn't really care what the money is used to purchase. It makes money on the interest and servicing of the loan.
The mortgage proceeds may be used to buy a house, to go on vacation, pay off credit card debt, or to pay daily bills.
The home's equity is essentially non-liquid money the owner of the property may use for his own purposes.
The benefit of the reverse mortgage is you do not ever have to make monthly payments to the mortgage company.
Of course that begs the question, "how does the mortgage company make money?" Now we're talking.
The lender simply doesn't make money today. Instead of receiving monthly payments the lender lets interest accumulate on itself. It is the quintessential negative equity mortgage.
Most times the mortgage lender is repaid its loan plus accumulated interest by the sale of the property. Either the borrower dies or the borrower sells voluntarily.
Important to note, because of all myths, is the borrower or it's family never loses ownership of the home during the mortgage.
The real hook to reverse mortgage, which is really helping many seniors in dire financial straights, is the lack of period payment to the lender.
What people must understand is it is not the perfect answer to all financial situations. For example its closing costs can be prohibitively high in the wrong situation.
posted by Credit Counseling at
2:37 PM
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