Mortgages have assumed a number of characters from
time of their inception. The traditional mortgages used to be of repayment type. Every month mortgagor used to pay a certain amount towards both principal and interest. Sensing hardships that people have to face in making these payments, mortgage providers came up with interest only mortgages. But present day customer is more pampered. He needs a mortgage where he enjoys cash, but is not required to pay a penny towards repayment. A reverse mortgage is a perfect solution to such requirements. It allows a homeowner to plough equity in his home to get cash. While borrower enjoys cash on mortgage, he is rid of any monthly payments.
The amount of loan received on reverse mortgage will depend on age of borrower and value of home. The borrower has no obligation to repay loan as long as he continues to reside in house or as long as he survives.
To understand reverse mortgage, it will be beneficial to compare it with forward mortgages. The forward mortgages are traditional mortgages. These require a monthly payment either towards both principal and interest, or only towards interest. This way forward mortgage is repaid at end of repayment period.
However, reverse mortgage works opposite to forward mortgage (hence name). The lender advances money to customer, for which he receives no payment. This means that debt goes on increasing. Simultaneously equity in home decreases. This is a rising debt and falling equity scenario. The amount of debt can never increase value of home. Thus, mortgage provider, at time of repayment, can only lay claim on home.
Reverse mortgage is only available to people who are 62 years or more of age. The home to be mortgaged must be owned by borrower, either individually or as a joint holder. He must have lived in home for majority of years and this must be primary residence of customers.
Reverse mortgage is a good source of income for elderly people. The borrower must decide manner in which amount received through reverse mortgage is to be disbursed. The government does not tax amount received on mortgage, and borrower is free to use money in way he likes. Customers who want a regular income can draw a regular monthly payment. Some customers want a credit line opened in their name so that they can draw cash as and when they want. For others availability of a lump-sum amount is more important, since they can apply it for purposes that are more constructive. Even a combination of these options may be used to draw money on mortgage.
