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What is a Reverse Mortgage?

Reverse mortgages are becoming popular nowadays because of its amazing benefits that they offer for retirees. If you saw reverse mortgage advertisements on newspapers, TV commercials and even online banners, you will notice that the elderly models are smiling while endorsing these. Many people wonder how it works since people aren't fond of paying mortgages.

A reverse mortgage is the exact opposite of the traditional mortgage. If in the traditional mortgage, the mortgager pays the lender; in reverse mortgage, the lender pays back the mortgager. The borrower is eligible with this type or mortgage if he is 62 years old and above, has already paid his mortgage, has a good house equity, resides in the property, and is free of any debt. Because the payment is not paid back to the lender and are not deducted by tax, this type of mortgage can also be considered as an easy and legal loan for senior citizens.

Payments from the reverse mortgage can come from three ways: through monthly payments, a line of credit or a lump sum. Monthly payments are ideal for elderly people who need a monthly income to sustain their daily needs. A line of credit is great for old people who are planning to use the money in the future. Lump sum is perfect for the remaining elderly who are planning to use the money for huge expenses like buying a new property, a vehicle or for another useful investment.

The maximum amount that a mortgager can receive from the lender is $625,000; enough for him to live the remaining years of his life comfortably. But even if the payment received from the reverse mortgage is free, the mortgager still has to follow certain conditions in order for him not to repay it. The mortgager must not move out of the house for more than a year, must not sell the house to anyone and most importantly, must not be dead. In addition, the mortgager must also pay property taxes, has a current insurance and keep the house well maintained.

This type of mortgage might have great benefits for the mortgager but none for the heirs. Heirs are obliged to pay the payments made by the lender once the mortgager passed away or broke one of the conditions in order for them to keep the house. If they can't pay the lender, then they can either choose to sell the house and use the acquired money to pay the lender or surrender the house to the lender.

In addition, the mortgager has to reside most of the time in the house after the reverse mortgage agreement which is not ideal if he is too weak to be confined in the hospital frequently or is a suitable resident in care houses. Although home nursing is a great solution for this problem, it could be a problem for elderly people who live far away from their children and grandchildren. In this situation, the mortgager must decide if he will ask his relatives to live with him and his home nurse, use the reverse mortgage to buy another property and move there or move out and pass the debt to his heirs.

Reverse mortgage might be beneficial to elderly people but it is not the same case with some of their heirs. This is a great investment for mortgagers who don't have an immediate heir, are not planning to leave a large inheritance and needs cash easily; but is not for those with dependents. It is better to think thrice before you get one or else your remaining relatives might not be happy with your decision.

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