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Most Americans fail to save enough money for retirement, so it's no surprise that many seniors consider taking out another mortgage on their home to make ends meet. An increasing number of these seniors are considering reverse mortgages, known for the quick money that they provide without the need for monthly repayments of the loan. However, reverse mortgages are not for every senior, which is why it's important for you to understand the facts of it before getting into one.
The Definition of a Reverse Mortgage
A reverse mortgage is a mortgage in which the homeowner is paid a certain amount of money for the legal rights to the home when the homeowner passes away. Reverse mortgages are typically only offered to seniors 62 and up, although some companies have begun offering them to seniors as young as 60.
Why They're So Often Considered
Reverse mortgages are different than home equity mortgages in that they do not have to be paid back in cash. Rather, the “payment” for the mortgage
loan is the house itself. For seniors that do not have kids, or do not care to leave the house to them, the reverse mortgage is very appealing because it offers cash to them when they need it most, without the worry of having to pay back the loan when alive.
How it Works
The confusion with reverse mortgages stems from the fact that most do not know exactly how it works. In a nutshell, the homeowner signs a contract stating that the lender will take over the house upon the (a) death of the owner or (b) owner moving out of the house for greater than 12 months. When the owner either dies to leaves the house, the house automatically transfers to the lender.
In exchange for agreeing to give up the house upon death or upon leaving it, the owner receives money from the lender that is determined by three main factors: the age of the owner, the value of the home, and the method the owner chooses to receive the money. Older senior citizens generally receive more money than do younger ones, and a higher valued home will get a bigger offer than a smaller home will. Homeowners that choose to receive the money all at once will get a far less amount than they would if they took it over time (in monthly payments
) or in the form of a credit limit.
Why to Be Careful
Reverse mortgages are not for everyone, and for those who have enough money to cover expenses and wish to leave the estate to family members, a reverse mortgage is not the best choice. Carefully examine the terms of any reverse mortgage you're offered to ensure that it is right for you.
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