What is reverse mortgage
Surviving on a fixed income is often feared by those getting close to retirement age. With the high cost of living only continuing to rise, and retired people living much longer than ever before, it is no surprise that the mortgage industry has creatively begun to address this issue. The solution is called the reverse mortgage loan and obtaining such a mortgage can help a retired couple remain in their home without the pressure of high mortgage payments.
In a reverse mortgage, you have choices to make regarding the way you want to borrow the money. The first type of reverse mortgages is to obtain a lump sum. This type of mortgage allows the homeowner to take out a lump sum of cash for a percentage of the value of their home. Realistically speaking, a home that is worth $300,000 will net the homeowner about $190,000. Mortgage lenders take into consideration how old the borrowers are, where the home is located and if the home needs any upgrades or significant repairs when calculating a reverse mortgage payout.
A lump sum payment has the highest interest rate for all types of reverse mortgages and unless you need a large sum of money, this type of mortgage may not meet your needs as other reverse mortgages can.
The second type of reverse mortgage is technically considered a line of credit. If your current mortgage is not completely paid off, you will need to qualify for a cash payment in order to pay off the mortgage. Once your mortgage is taken care of, you can apply for a reverse mortgage in the form of a line of credit.
A third type of reverse mortgage involves receiving monthly payments from a lender, ensuring that you have extra money every month to meet your needs while on a fixed income. A home worth $300,000 will roughly net the homeowner $1200 a month in cash payments. The mortgage lender calculates the payment amount based on where the home is located, what the home is currently worth and how old the borrowers are.
The final type of reverse mortgage is a combination of the three that are currently available. You can opt to get a small cash lump sum to pay off your current mortgage, get small monthly payments and keep a line of credit open that you can access easily.
