How Reverse Mortgage Works?

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The US baby boomers and seniors have a hard time making home loan approved by banks for many reasons. Most banks require that you have a good credit standing, a stable job and other requirements before you are granted a bank loan.

One option for the senior homeowners to get a loan is through reverse mortgage. A reverse mortgage is a loan accessible to people over 62 years of age that allows a borrower to convert portion of the equity in their home into cash with no monthly mortgage payments. The loan is insured by the Federal Housing Administration. Nevertheless, borrowers are obliged to continue paying property taxes and insurance and conserve the home according to FHA guidelines.

How Reverse Mortgage Works

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Reverse mortgages is a type of mortgage in which a homeowner can borrow money against the worth of his or her home. It is regarded as a way to assist people in or near retirement and with limited salary and earnings use the money they have put into their home to pay off arrears, medical care, home renovations, daily and month cost of living expenses and even standard mortgages.

One positive note about that…

There’s no restriction on how a borrower may use reverse mortgage takings. Click To Tweet

What is good about the reverse mortgage is that as long as you live in the home as your main residence, the loan does not become due. You are not forced to settle up the loan until the home is sold, evacuated or until the borrower dies. The borrower only needs to ensure that all loan obligations are met like tax and insurance payments.

How reverse mortgage works?

  1. After computing and estimating for the initial mortgage amount, the rate at which interest accumulates, the duration of the loan and rate of home price appreciation, the transaction is designed so that the sum of the loan will not go beyond the value of the home over the life of the loan.
  2. The lender will require that there can be no other legal claims against the home. Any existing loans and claims must be paid off with the proceeds of the reverse mortgage.

As mentioned earlier, a reverse mortgage can be used in several ways to ease the financial pressure of retirement.Ways of Reverse Mortgage

  • Eliminate existing mortgage. You can use your reverse mortgage to pay off your existing mortgage.
  • For medical and emergencies. Save the money for emergencies if you don’t need it yet especially for health and unexpected medical emergencies.
  • House improvements.  Use the money to defray the cost of minor or major home repairs that need immediate attention.
Improve the value of your home wisely. This will help you sell it at a higher price. Click To Tweet

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  • Mortgage payment. Using your reverse mortgage, you can create your monthly expenses and pay your current loan to keep your expenditure and payments scheme balance.

Early retirement scam tips from FINRA

Whether or not you opt for a reverse mortgage, you should be wary of brokers who promise the following for your retirement:

  • Anyone can retire early. You need to have the savings to support you for the long term in retirement, so make sure you independently verify your ability to sustain yourself in retirement.
  • You can earn as much in retirement as you do today. This would require unrealistically high investment returns and perhaps large withdrawals that would be unsustainable.
  • You can expect returns of 12 percent or more. Not only is predicting returns on investment extremely difficult, but anything with that high, a return would likely be a high-risk investment.
  • You can withdraw 7 percent or more annually. A sustainable retirement requires savings and investments for income and a conservative withdrawal pattern. According to FINRA, many financial experts recommend that you withdraw only 3 to 5 percent of your retirement fund, especially during the first few years if you are retired. (Bestreversemortgage)

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