Reverse mortgages have been around for decades. They are becoming more popular lately because many lenders are offering them and there are more risks involved. If you are looking at a reverse mortgage as an option, then there are several things you need to consider carefully. First of all, this type of loan is only available to homeowners who have current home equity and enough income to qualify for the mortgage.
There is also a very high rate of interest associated with this type of loan because you are actually borrowing from your home equity. A reverse mortgage typically is a second mortgage or a mortgage with a balloon payment that is paid off once the homeowner has reached the age of 65. The loans are generally offered to senior citizens and in most cases don’t require monthly payments. Instead, the borrowers pay on the loan balance for a specified period of time.
Most of these loans have a fixed interest rate for the life of the loan balance, although the lenders can adjust the rate up or down during the term of the loan. The benefits of the reverse mortgage are that the lender guarantees a lump sum, which acts like insurance against the homeowner defaulting on the loan. In addition, the lender is able to sell the guaranteed amount at a later date to recoup their losses.
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The amount that can be borrowed will depend on the homeowner’s age, the value of their home equity and the lump sum they have agreed to borrow. The lenders must have current copies of the homeowners credit records so that they can determine what their interest rate will be. These types of loans typically do not have a prepayment penalty, so borrowers do not have to pay anything extra to the lender if they decide to repay the loan early. It is important to remember that if you are planning on living in your home for quite some time, you will probably have many years left on the loan.