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What is the one thing you read over and over? Buy a home! The advice makes sense in this case as a home is a good long term investment. The question, however, is how do you get the money out when you need it? Most people are familiar with a forward mortgage. You borrow money from a lender to pay for a home. You then pay back the loan on a schedule over a number of years. The reverse mortgage is similar to this, but the money is going the other way. Most people view reverse mortgages as new financial tools. In truth, they have been around for over 50 years. As more people try to figure out how to access the equity in their home, the reverse mortgage is seeing a renaissance. The reverse mortgage is one of the rare financial tools that allows for age bias. In fact, there is a mandatory age limit and it is legal. Simply put, you must be 62 year of age or older to apply for a mortgage. The reverse mortgage works the opposite of a traditional mortage, but it can be hard to get your head around the concept. Essentially, the lender buys the equity in the home from you by making payments to you. So, what is the deal with the payments? Well, it depends on the lender. In some situations, you can receive a lump sum payment for your equity. In others, you can get monthly payments from the lender. The star issue paraded in the marketing for reverse mortgages is the mortgage pay back. Simply put, there is none. The lender recovers the money they have paid you when the house is subsequently sold. So, are there any negatives to this equity converting financial product? Oh, yes there are. Remember, marketing efforts are all about emphasizing the positive while ignoring the negatives. Sometimes it is hard to see the forest for the trees. With the reverse mortgage, this has to do with the issue of what is left at the end of the process. Simply put, the lender is going to take a large chunk of the home, not your heirs. The cost of the reverse mortgage is another big issue. Simply put, the fees are outrageous in most cases. They often run up in the tens of thousands of dollars. The interest rate on the accruing debt is also going to be higher than normal loan rates. Sooner or later, home owners are going to have access the equity in their homes. Despite the big marketing effort, these loans are not a great option for seniors. Better ones exist, so speak with your planner to learn more.
Article Source: http://www.realestateinvestmentarticles.net
Barry Waxler writes about the alternatives to a reverse mortgage at UFCAmerica.com.
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