The reverse mortgages industry is booming. The reason is it’s a viable source of income for the elderly. Many older people end up working second jobs to make ends meet. This is a burden during the golden years of a person’s life. Reverse mortgages allow anyone after the age of 62 to use the equity in their home to get a little extra money to live on.

So what exactly is a reverse mortgage? It’s a loan that pays you, the borrower. The equity in your house is used to create a loan amount which is then paid to the borrower in several ways. The first way is to have a set monthly payment every month until the home is no longer lived in by the borrower. The second way is a set number of payments for a determinate amount of time, usually 5-10 years. Reverse mortgages can be taken out as a line of credit as well. This is one of the best types because it allows you to repay the loan and reuse the credit line. Some of the most common reverse mortgages are a combination of the above.
How does a reverse mortgage differ from an equity loan? They do sound alike, after all. Right? A reverse mortgage doesn’t need to be paid at all until the home isn’t the primary residence of the borrower. The interest continues to accrue however, and in the event of the sale of the house or death of the owner, that interest needs to be paid.

Reverse mortgages are great for those who are a lot older and in dire need of funds. The funds should be used for things like emergency health care. Otherwise, a reverse mortgage is not a great bargain for a borrower. And the earlier you take out a reverse mortgage, the more interest that accrues.

One reason a reverse mortgage loan is chosen over home equity is because it requires less credit qualifications. Specifically, your debt to income ratio is less important with a reverse mortgage, unlike any other revolving credit lines. The interest rate and loan amount is calculated on the length of time you’re in your home, the value of your equity (your loan minus the amount your home is worth now) and your age. The older you are, the longer you’re in your home is what determines your interest rate.

Reverse mortgages sound great, but they can be debilitating. They’re expensive and can create a situation where, if the owner needs emergency cash it’s unavailable due to be tied to this type of loan. This type of loan is also sold to consumers as a way to invest cash, but, in the long run, the loan will cost much more than most money made investing it. Your home already is an investment.

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