We've seen Robert Wagner on television, and if you are a senior, you are getting solicitations in the mail for a reverse mortgage.
Even with all of this information being thrown at us most sixty two plusers can't give a rudimentary explanation of how a reverse mortgage works.
In efforts to clarify I will do my best here.
The first thing to do is throw out any preconceived notion, anything you've heard from some guy, and keep in mind a reverse mortgage is nothing more than a mortgage on your home. The lender loans money using equity as security for its investment.
What I just described in the forward mortgage is really no different than the description of a reverse mortage. I want to be clear here in efforts of eliminating all odd ball notions of what it really is.
Although these loans have their differences they are fundamentally the same.
The mortgage company doesn't really care what the money is used to purchase. It makes money on the interest and servicing of the loan.
There is any number of things we can do with the money from our mortgage. If its a purchase those proceeds are used to pay the seller. If it's a refinance it's limitless.
The home's equity is essentially non-liquid money the owner of the property may use for his own purposes.
Why do people use a reverse mortgage? Because they can access this money and never be forced to make payments to the lender.
So, then how does the lender make its profit? I'm so glad you asked....
The lender simply doesn't make money today. Instead of receiving monthly payments the lender lets interest accumulate on itself. It is the quintessential negative equity mortgage.
The bank is only repaid either when the borrower decides to make a full repayment or when the borrower dies and home is sold.
Important to note, because of all myths, is the borrower or it's family never loses ownership of the home during the mortgage.
The real hook to reverse mortgage, which is really helping many seniors in dire financial straights, is the lack of period payment to the lender.
What people must understand is it is not the perfect answer to all financial situations. For example its closing costs can be prohibitively high in the wrong situation.
Even with all of this information being thrown at us most sixty two plusers can't give a rudimentary explanation of how a reverse mortgage works.
In efforts to clarify I will do my best here.
The first thing to do is throw out any preconceived notion, anything you've heard from some guy, and keep in mind a reverse mortgage is nothing more than a mortgage on your home. The lender loans money using equity as security for its investment.
What I just described in the forward mortgage is really no different than the description of a reverse mortage. I want to be clear here in efforts of eliminating all odd ball notions of what it really is.
Although these loans have their differences they are fundamentally the same.
The mortgage company doesn't really care what the money is used to purchase. It makes money on the interest and servicing of the loan.
There is any number of things we can do with the money from our mortgage. If its a purchase those proceeds are used to pay the seller. If it's a refinance it's limitless.
The home's equity is essentially non-liquid money the owner of the property may use for his own purposes.
Why do people use a reverse mortgage? Because they can access this money and never be forced to make payments to the lender.
So, then how does the lender make its profit? I'm so glad you asked....
The lender simply doesn't make money today. Instead of receiving monthly payments the lender lets interest accumulate on itself. It is the quintessential negative equity mortgage.
The bank is only repaid either when the borrower decides to make a full repayment or when the borrower dies and home is sold.
Important to note, because of all myths, is the borrower or it's family never loses ownership of the home during the mortgage.
The real hook to reverse mortgage, which is really helping many seniors in dire financial straights, is the lack of period payment to the lender.
What people must understand is it is not the perfect answer to all financial situations. For example its closing costs can be prohibitively high in the wrong situation.
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