Reverse mortgage : releasing the equity in your home

A reverse mortgage is almost, but not quite, what it sounds like: a backwards version of a conventional mortgage. An ordinary mortgage involves payments from the borrower to the lender, whereas a reverse mortgage involves payments from the lender to the borrower. It's a way of taking advantage of the equity in your home. The minimum age for taking out a reverse mortgage is usually 62, and such mortgages are popular with older people who want a little extra money to live life to the full. Read on for more information.

Advertisements for reverse mortgages emphasise the advantages of doing this. You're likely to see images of people taking round-the-world cruises or buying flash sports cars with the money that was previously locked into their home. But there are aspects of refinancing that you won't see in the advertisements, and it's better to learn all the facts about reverse mortgages before you take the plunge.

The facts about reverse mortgage loans and lenders

You see, there is a catch. Although the cash-flow in a reverse mortgage is in the opposite direction to that of a conventional mortgage, the situation is essentially the same: you are borrowing money from a lender and you will have to repay that money eventually. One of the differences between a reverse mortgage and a conventional mortgage is that, with a reverse mortgage, the money you've borrowed doesn't have to be repaid until the house is sold or you die. This means that, unless you're thinking of moving, you don't have to worry about repayments. But don't forget about interest. Interest starts accruing when you take out the loan, and it's added to the balance of the loan for each month onwards.

There are advantages to taking out a reverse mortgage, particularly if you're "house-rich, cash-poor". But you're not really "unlocking the cash trapped in your home", as the advertisements might have you believe. A reverse mortgage is simply a loan by any other name. You're using your house as security for that loan, and if the loan can't be repaid, you risk losing your home. You may decide that you're not worried about the prospect of losing your home. Perhaps you just want to live for the moment and forget about the kids' inheritance. That's your choice, but you need to know what you're letting yourself in for when you take out a reverse mortgage. A useful resource for more information is the American Association of Retired Persons (AARP), whose website (www.aarp.org) has a section on reverse mortgages. (USA)

 

 

 

 

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