Purchasing a house or property can be expensive. Most people don’t have nearly the resources to simply put down money on a property to buy it completely outright. That’s why banks and other money lenders have the option to grant potential property buyers a mortgage loan. That is simply an amount of money equal to the buyer’s need to purchase a house or property that the buyer agrees to pay back to the lender.
Source: PixabayIf the buyer does not pay the money back, the lender has full claim on the property, since it was the lender’s money that purchased it. These loans can be quite high and many people spent most of their lives trying to pay one off. Most people assume that once a home is paid off, or once a property is officially purchased that the financial story surrounding ownership is over, but that’s not the case with a reverse mortgage.
Home Equity Conversion
A reverse mortgage, also called a home equity conversion mortgage, is easy to understand when put beside the definition of a mortgage. Instead of a home buyer paying back a lender for the value of a property, a home buyer is paid for the equity of their home by lender. Equity is the value someone’s home has that is not owed to any lender. So if someone has been paying off their home loan, than the amount of the home’s current worth that has already been paid back is the home’s equity. Getting a reverse mortgage on a property’s equity is basically like being paid back for all the years a home owner has spent faithfully paying for their home.
Reverse Mortgages Aren’t For Everyone
Does this sound too good to be true? Well, there are a few catches. For one thing, only senior citizens can qualify for one. For another, the borrower of the reverse mortgage does have to pay back the loan when the home is no longer their primary residence, meaning you have to live on the property to claim the loan. If the borrower moves or passes on, the claim on the reverse mortgage does need to be paid back.
Make Your Choice Today
A reverse mortgage, can be an ideal option for an older member of the family who is having difficulty having ends meet on a fixed income. A typical requirement is that the house must be paid for already, or that the amount owed on the home is enough that their reverse mortgage could cover the remaining balance. To make things easier, a reverse mortgage can be paid out in small increments, similar to an income to help the loan last longer and to decrease any pay back due at the end of the contract. It can also be taken out as a lump sum if that suits the borrower’s needs better.