Reverse mortgage lenders
It was the warm morning of February and after having my breakfast I was sitting in my garden and enjoying the bright sun shine. At that time, I got a call from one of my friends, both of us worked for the same organization before retirement. After exchanging few words of greetings, he asked me did you know something about reverse mortgage loan Sorry, I am not acquainted with it, I said. He continued, ok, dear friend.
I just want to say that since your home is probably your largest single investment during your lifetime, so it s smart to know more about reverse mortgage lenders, and if this one is right for you ! His words touched my brain chord and I pump up my adrenalin to enter into the world of REVERSE MORTGAGE LOAN. A reverse mortgage is a special type of home loan that lets a homeowner converts a portion of the equity in his or her home into cash. The term Home equity means the value of your home minus any debt against it. In other words, you can say that it is a loan against your home that you do not have to pay back as monthly installment like other loan as long as you live there. To qualify for a reverse mortgage in the United States, the borrower must be at least 62 years of age. The borrower must pay off any existing mortgage with the proceeds from reverse mortgage lenders. A pending bankruptcy may however delay or pending the process for obtaining a reverse mortgage. There is no doubt that this loan really sounds different from other bank home equity loan. Let us discuss this topic elaborately to properly understand its characteristic . As we know that whenever we want to buy new home or property then we have to make down payment and borrowed the rest of the money needed to buy it.
Then, we paid back mortgage loan every month over many years. Thus, after each repayment your home loan amount decreases but increase home equity. In this case, we use our income to repay debt and this builds up home equity. The reverse mortgage is just the opposite of it. In the case of reverse mortgage, the lender sends you cash and you make no repayment. Wow! Sounds great for you. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or Federal Housing Administration (FHA) mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. Therefore, the amount you owe gets larger as you get more and more cash and more interest is added to your loan balance. As your debt grows, your equity shrinks. Therefore, when a reverse mortgage becomes due and payable, you may owe a lot of money and your equity may be very small. If you have the loan for a long time, or if your homes value decreases, there may not be any equity left at the end of the loan. You are still required to pay your real estate taxes and other conventional payments like homeowner. By now, hope, it is clear about the differences between reverse mortgage and traditional forward mortgage. In a nut-shell, we can say that the purpose of a forward mortgage is to purchase a home while that of reverse mortgage is to get cash from your home. The cash you get from a reverse mortgage can be paid back to you in several different ways.
Let us look at some of these:
a) By Tenure- equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
b) All at once, in a single lump sum of cash.
c) Line of Credit: as a credit line accounts that let the borrowers to choose the amount and times until the line of credit is exhausted.
d) As a combination of line of credit with monthly payments for as long as the borrower remains in the home . It is called as the modified tenure.
\e) Combination of line of credit with monthly payments for a specific period of months selected by the borrower which is termed as modified term.
Regarding the eligibility of house, it must be a single family dwelling or a two-to-four unit property that you own and occupy. Moreover, in addition to these town houses, detached homes, units in condominiums and some manufactured homes are eligible. The next point to discuss is what the tenure of the loan is or when the loan ends Usually, the loan ends when the homeowner dies, sells the house or moves out of the house for 12 consecutive months or more. At that point, either the house is sold or refinanced by the heirs of the homeowner s estate. If the proceeds exceed the loan amount, the owner of the home receives the difference. And, if the owner has died the heirs receive the difference. For cases when the proceeds are not sufficient to pay off the loan then the bank pay off the difference . This reverse mortgages are becoming popular day-by-day in US. The U.S. Department of Housing and Urban Development (HUD) created one of the first systems of Reverse mortgage.
This HUDs reverse mortgage is nothing but a federally insured private loan. It is successful in providing older Americans greater social security, meet unexpected medical expenses and make home improvements, etc. Let me clear a point that, before borrowing, applicants must seek HUD approved counseling. The counseling is a free safe guard for the borrower and his/her family, to make sure that they completely understand what a Reverse Mortgage is, and what the process for obtaining it.
The most popular type of reverse mortgage lenders in the US is FHA-insured Home Equity Conversion mortgage (HECM). The biggest drawback with reverse mortgages is the high upfront costs. As a result, some senior fellows may want to look into other options to tap their home equity. For instance, a home equity line of credit (HELCO) required interest-only payments for ten years can be used. The loan has no doubt very low upfront cost but the borrower must pay the monthly payment to the lender. These payments can be made for several years by drawing on the line of credit itself. Of course, the balance needs to be paid of when the house is sold or the owner dies just as with reverse mortgage lenders. With regard to taxes in connection with reverse mortgage, generally the IRS does not consider loan advances to be income. However, annuity advances to its regard may be calculated partially taxable. Moreover, interest charged is not considered as deductible until it is actually paid. Sikhadri SARMAH
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