Need to Know About Reverse Mortgages | Advisor World

Need to Know About Reverse Mortgages In simple words, it is a loan for senior citizens whose age is 62 or older. Basically, this loan allows converting home equity into cash income. The senior citizens who are retired and need to run their daily expenses opt for this plan because in this the bank pays to them in exchange for their property per month, and after a few years, when the money of the property is fulfilled by the bank the ownership of the house gets transferred to the bank. These are the alternatives to pensions. This is all About Reverse Mortgages.

How does it work?

In this process, the owner of the house doesn’t pay the lender; the lender pays the house owner. If the senior citizen dies in the middle, the bank asks their legal heirs to pay off the debt and transfer the ownership in their name or simply sell the house. If the house gets sold for more money than the loan amount, the excess money gets transferred to the legal heirs.

These are not taxable. It may feel like an income to the owner, but under IRS (INTERNAL REVENUE SERVICE), it is considered as a loan in advance, which is paid by the bank. All

over the duration of the loan, the owner’s debt increases, and the home equity decreases. Beware, it can turn into a scam a few times for seniors.

Types of reverse mortgage Single-purpose reverse mortgages These types of mortgages are offered by local, state, and nonprofit agencies. These are the least expensive and very uncommon among people. In this, the lender restricts the proceeds. This is a process that depicts about reverse mortgages.

Home equity conversion mortgage These are federally insured and too expensive than traditional home loans. This loan is used widely because it doesn’t have any limitations, and it can be used for any reason.

The senior must be aware of payment options and the responsibilities involved in the procedure.

Proprietary reverse mortgages These loans are given by private lenders. These provide benefits to the owners who demand more money, and their homes are evaluated at a higher rate. These provide an option to choose in lump sum amount, monthly or quarterly. These explain about reverse mortgages.

There are four ways to receive proceeds; let’s find out what are they:1. Lump sums — Get all the money at once when the loan closes.

2. Annuity — Till one borrower lives as a principal residence, the lender will make slow payments.

3. Term payment — The lender will give an equal sum of money each month for a due period set by the owner.

4. Line of credit — If the borrower wants more money beyond the contract of monthly, he can take it from the lender.

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