Reverse mortgage loan
Mortgage loans are one of the most popular security backed loans in the market now. Reverse mortgage loan is a type of mortgage loan, but with a difference. Reverse mortgage loan is a type of loan where the senior citizens can use their home equity, which is otherwise illiquid in nature, to secure a loan from lenders. Thus it helps them to pre-pone future cash flows to the present in a way. In a mortgage loan, a loan is secured against the property and the borrower is supposed to make monthly payments, part of which is towards the principal and part to cover the interest on the principal. Thus, with each payment, the principal outstanding decreases and thus the home equity of the borrower keep increasing. In a reverse mortgage loan, the things are just the opposite. In reverse mortgage, the home is already the property of the borrower. The homeowner pledges the property to secure a loan which will only be due upon death of the borrower or when the borrower moves out or sells the property. Till that time, the borrower will get payment, either in one lump sum amount or in the form of monthly installments. A consequence is that as the loan outstanding keeps increasing, the home equity of the borrower keeps decreasing until it becomes zero. A good thing in the case of a reverse mortgage loan is the fact that the owners can continue staying in the property that they have pledged. In fact, they cannot leave the property and stay elsewhere in which case the loan becomes due and repayment has to be done. The only exception is on hospitalization which is allowed up to 12 months, beyond which the loan again becomes due. Another important aspect of reverse mortgage loan is that there is no way that the liability of the loan is passed on to the heirs of the borrowers. When the loan is due, the borrowers or their heirs have the option to repay the loan or the house will be sold off to recover the loan amount and any extra amount will be paid back to the borrower or their heirs. However, if the sale value of the property is not enough to cover the loan amount, then the liability is not passed on to the heir and the lenders take the burden on themselves. In most cases, there are no restrictions on how the funds obtained from reverse mortgage loan can be used, although some federal government backed programs do have certain restrictions in place. Thus we see that reverse mortgage loan can be of great help for senior citizens. However, there are certain caveats associated with it, so you should understand them well before signing for a reverse mortgage loan.
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