Today I will be teaching you the basics of reverse mortgages.
As you know doubt already know, a standard mortgage works in the following way; a person seeking to purchase a home will negotiate for the final price and get a loan from a bank.
This loan has an interest rate associated with it and there are closing cost to consider as well.
But ultimately you will be making payments towards the home, and interest, and as you make these payments the amount of equity or ownership which you have in the home will increase slowly over time.
Reverse mortgages work in the opposite way.
Although they to have interest apply it is not paid in monthly payments.
Instead a person has equity in their home already and they borrow against this equity and are paid in monthly payments.
The amount owed increases as monthly payments are disbursed and interest is applied to the total amount due and this is also added to the loan.
It is important to keep this in mind as compound interest can make the loan increased in size very rapidly if it continues to exist for a very long time.
Reverse mortgages are only available to people over the age of 60 as they are intended as a means for older people who have equity in their home but a fixed monthly income, the retired, and are in need of additional monthly income to pay their bills.
Remember however that these loans decrease the equity which you have in your home so if your intention is to give your home to your children, as a means of looking out for them once you are gone, you may not have much ownership in the home which you give to them.
Also, the loan becomes due and this should be considered.