A reverse mortgage refers to a loan, which is available to the seniors, and is employed for releasing the home equity, as per the property as a single lump sum or as multiple payments. The obligation of the homeowner to repay the debt is deferred till the owner dies, or the home gets sold, or in case the owner leaves.
In case of a conventional mortgage, the owner of the house opts for a monthly amortized payment towards the lender; after every payment the equity grows up within his/her property and generally after the term is ended, the mortgage gets paid fully and the property gets released from the lender, whereas in case of a reverse mortgage, the owner of the house makes no payments, with all the interest getting added to the lien of the property. In case, the owner gets monthly payments or bulk payment on the equity percentage available for their age, then in that case, the debt over the property rises every month.
As per the plan opted, reverse mortgages usually allow the homeowners to retain a title to their properties, until they move permanently, sell their properties, die, or get to the end of the term of a pre-selected loan. Usually, a move is considered to be permanent in case, the homeowner has not resided, in the home for twelve consecutive months.
However, reverse mortgages are believed to be costlier than the traditional loans as these are rising debt loans. As it is, the interest gets included to the balance of the principal loan every month. Therefore, the entire amount of interest, which is owed, rises substantially with time as interest gets compounded. Reverse mortgages use all or a bit of equity in a property. This leaves lesser assets for the property owner and his/her heirs.
The lending institutions usually charge origination fees, as well as closing costs. Some may also charge servicing fees, as well. The interest on the reverse mortgage is not deductible in terms of income tax returns as long as the loan does not get paid off partly or in full. As the homeowners retain the title to their property, they continue to be responsible for the taxes, insurance, maintenance, fuel, as well as other housing expenses.
In case you have decided to opt for a reverse mortgage, then you should always shop around and compare the terms. You can also search the internet, which would also furnish you with a lot of information in this regard.
