Reverse Annuity Mortgage For Senior Homeowners
February 9th, 2012 | by admin |In recent years, there has been a great deal of interest in obtaining a reverse annuity mortgage and with good reason. This type of mortgage makes it possible for senior homeowners to slowly take out the equity in their home. With a reverse annuity mortgage, they no longer have to put their house on the market just so they could collect on their equity. Neither do they have to apply for a traditional home equity loan.
Not every person will qualify for this type of mortgage. A homeowner must meet a few requirements. For instance, this type of mortgage is available only for those who are at least 62 years old. Another requirement is that the home should already be paid off and the value must be worth more than the reverse mortgage amount. There can be no additional mortgages or liens on the property.
Homeowners who choose to go with a reverse annuity loan can either receive payment monthly or be paid in one large lump sum amount. Since the mortgage is an annuity, homeowners receive payments on a recurring basis.
This mortgage type is known as a reverse mortgage because of how things are done — in reverse. In a traditional mortgage, homeowners pay down the loan until they completely pay it off. They owe less and less money the longer they pay the mortgage and live in the home. With a reverse mortgage, the opposite happens. A homeowner receives money instead of paying it for however long they have arranged so. In essence, the monthly payment is how a homeowner is taking out their home equity.
It gets harder to meet monthly obligations the older people get. With old age, comes various physical ailments that require medical care. Medications and medical procedures can drain a person’s financial resources. The payments coming from a reverse mortgage loan can actually make a big difference.
Another reason a homeowner might want to obtain a reverse mortgage loan is to get the equity out of a home they don’t plan on moving out or selling. Rather than letting their equity sit there or go to someone else, older people are better of being able to enjoy the money from the equity they’ve built on their home. This mortgage is particularly helpful for individuals without any surviving family.
Below are the reverse mortgage pros and cons:
Pros:
* Homeowners can benefit from their home equity.
* Homeowners can remain in their home. They can collect the equity without having to put their home on the market.
* Homeowners on a limited budget have supplemental income.
* It has no effect on Medicare or social security benefits.
Cons:
* Homeowners must be 62 years old.
* Homeowners will build up a loan balance while they borrow against their home’s equity. They’ll have to repay this eventually.
* There are closing costs, origination fees upon setting up the loan and service charges or insurance premiums.
* Homeowners could lose their home if they don’t pay property tax, if they don’t maintain their home, if they don’t pay their home insurance, or if they fail to repay the money borrowed via the annuity.
There are advantages and disadvantages associated with a reverse mortgage. A reverse annuity mortgage can be the best option for the right person and under the right circumstances.