Wednesday, March 25, 2009

Reverse Mortgage

Reverse mortgage helps you to make use of the equity that is trapped in your home. Unlike, a traditional mortgage which may be referred to as diminishing debt and increasing equity, reverse mortgage is increasing debt and diminishing equity.

Reverse mortgage can be of immense help to the elderly. In fact, only people of the age 62 and above qualify for reverse mortgage. Reverse mortgages are loans that are secured against a home. And unless the borrowers die, move away, relocate permanently or sell off the house, no payment is required to be made. There is no income requirement either. The place has to be the primary place of residence.

You can opt for 2 types of reverse mortgage loans. They are private reverse mortgage loans and Home Equity Conversion Mortgage (HECM). The HECM types constitute approximately 90% of the reverse mortgage loan types. The Fed insures the HECM loans. In case of private loans, the lenders are at risk. Both types have their own benefits and drawbacks.

In case of HECM, the best part is that these loans are insured by the Fed. The drawback is that the appraisal in case of HECM is capped by the Federal Housing Authority. So, if you have a house that is quite expensive, it is better to opt for private reverse mortgage loans. In this way the appraisal will not be capped and you can avail a loan of a bigger amount.

A couple from Arizona opted for reverse mortgage from a private lender. When they applied for the loan, they found out that HECM would be lending 45% of the value of their home (USD$540,000). On the other hand, they discovered that a private lender was willing to lend 65% of the property value.

However, the amount you can get also depends on a number of other factors like age of the borrower, location of the house, interest rate etc. The amount that you can borrow differs from one place to another. It cannot exceed USD$417,000. The process begins with inspection and appraisal. The proceeds of a reverse mortgage can be availed as lump sum, line of credit or monthly payments.

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