January 20th, 2009 | by admin |
by Matt Vanrock
If you’ve somehow missed the tv commercials or junk mail trying to get you interested in the reverse mortgage you probably live a sheltered existence.
Truth be known most seniors have heard about reverse mortgages but still have very little understanding of what they really are.
That’s why I’m here. I’m the answer man and I’m here to educate.
To understand a reverse mortgage you simply need to understand a traditional forward mortgage. A forward mortgage is simply a loan utilizing equity in the house to back the security of loan.
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.
The point is these two mortgages are structurally similar, with just a few differences.
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.
There is any number of things we can do with the money from our mortgage. If its a purchase those proceeds are used to pay the seller. If it’s a refinance it’s limitless.
All I’m saying is the borrower taps the built up equity or money in the home to use for the borrower’s benefit.
The reverse mortgage is a popular tool to tap this money as the borrower need not repay the bank on a periodic basis.
Of course that begs the question, “how does the mortgage company make money?” Now we’re talking.
Reverse mortgages are true negative equity loans. That means since the borrower makes no interest payments the interest accumulates and accrues against the equity of the home.
The bank is only repaid either when the borrower decides to make a full repayment or when the borrower dies and home is sold.
Important to note, because of all myths, is the borrower or it’s family never loses ownership of the home during the mortgage.
With the ever increasing cost of life expenses and an ever not increasing income for so many seniors the reverse mortgage is gaining big popularity.
Its not all a bowl of cherries for the reverse mortgage. High costs and possible negative equity positions for the borrower are just a couple of the downsides.
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Tags: finance, finance for the elderly, Finance:Mortgage, Home Equity Loans, home mortgage, home mortgage for the elderly, mortgage, real estate, reverse mortgage, senior issues