Saturday, October 06, 2007

Reverse Mortgages

Reverse Mortgage

By Gary R. Brey, Broker
Manasota Realty Inc.

Over the last ten years or so, there has been a major increase in specialty mortgages. It use to be, in the not so distant past, that you would go to the bank to get a mortgage and there was really only one kind of mortgage that you could get.

These days, you have your interest-only loans, your Sarasota home equity loans and now comes a new kind of mortgage, and it sounds almost too good to be true.

A reverse mortgage actually stipulates that you do not have to pay back a single cent of your mortgage until you move out of your Sarasota home. That’s right, you do not pay a cent until you move out. Are there catches? Well, yes, of course there is, but that doesn’t mean that the reverse mortgage won’t work for you. Let’s take a closer look at this new borrowing tool.

You have to be over the age of 60 and own your own home. A reverse mortgage wouldn’t work for a first time buyer or if you don’t already own a home. It’s more like a home equity loan, but one you don’t have to pay back for a long time.

If you pass away before you move out of your home, the cost of the mortgage must still be paid off by whoever takes possession of the home next.

A major advantage of the reverse mortgage is that there are no income requirements at all. Since you don’t have to make monthly payments, the bank completely ignores your financial situation, even if you are retired and living on a fixed income. This can be a Godsend for those that need money to improve their home but wouldn’t be able to make even the smallest monthly payments.

You have many different choices when it comes to how you want to spend this windfall. You can have a single lump sum payment sent to you for you to do what you want with. You can get a monthly payment from the bank, like getting an extra check every month. You can even use it as a credit line, much like a credit card, where you write checks up to the balance of the amount you borrowed. This can be a great option if you’re simply paying contractors to work on your home.

Most reverse mortgages are set up so that you must live in the home while you have the mortgage. Even if you still own it, if you move out and begin to rent the property to others, your reverse mortgage would come due. Of course, every bank will have their own set of rules, you should check with your local lenders to see what their rules are.

Should the equity of your home fall due to a disaster or some other unforeseen problem, a reverse mortgage can really bite you in the butt. Most people take a reverse mortgage to improve their home and build equity so that they can then sell it, pay back the reverse mortgage and still have a nice investment profit. But there are circumstances when a house’s value falls and you’re still left with the mortgage to pay back. Just because you don’t have to pay it off every month, you shouldn’t underestimate the fact that the debt is real and so is the eventual repayment.

If you know someone who might be considering one of these loans, make sure they completely understand what they are getting into before they sign on the bottom line. Since you must be over a certain age to get this mortgage, judgment can be altered due to conditions such as Alzheimer’s and other illnesses associated with age. While it is completely possible that the person getting the loan will never have to pay back a penny of its cost, that person’s children will be given the debt after they die.

A reverse mortgage can be a wonderful way for people on fixed incomes to improve their living situations. But just like any other mortgage, it will have to be paid back eventually so they should not be entered into lightly.
Sarasota Real Estate

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