An Overview Of Reverse Mortgages - part 1
by Richard Chapo
If you own a home, you know mortgage products have moved beyond the basic 30 year fixed option. Reverse mortgages are one such product and here is an overview.
An Overview of Reverse Mortgages
A typical mortgage is created when a lender provides you with a lump sum amount of cash to purchase real estate. In consideration of this, you agree to repay the mortgage on a monthly basis for a defined time period at a particular interest rate. The length of the repayment period and interest rate, whether fixed or adjustable, set the monthly payment amount.
A reverse mortgage works in a similar way, but backwards. It is a fact that the baby boomer generation is moving into their retirement years. A high percentage own homes with significant amounts of equity in them. The problem, of course, is equity is a fixed asset, to wit, you can't see it in your bank account. Traditionally, the best way to turn this hard asset into cash was to sell the property and move down to something cheaper. You then pocketed the difference in the form of cash.
Many people, however, are attached to their homes. A good portion of your life, including raising a family, may have occurred in your home and it is emotionally difficult to sell it. On top of that, tax issues may take a bite out of the cash you receive. Throw in the pure misery of attempting to move all of your valuables that have been accumulating for 15 or 30 years and selling your home starts to look like a dubious option at best.
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An Overview Of Reverse Mortgages
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