A reverse mortgage is a type of loan that is only available to senior citizens who own equity-rich real estate and wish to turn the equity in their homes into cash. The money can be used to provide security during retirement years or be used in acquiring some sort of retirement accommodations, although the borrower must pay off any existing mortgage with the income before using the funds for other ventures.

Essentially, a home owner will sign over the ownership of his real estate in exchange for a loan. The loan can be awarded in the form of scheduled monthly payments or if preferred, one lump cash payout. Unlike traditional loans, the borrower is not required to make repayments on the money seeing as repayment only occurs either: at the time of the sale of the property, when the residents move out or after the owner’s death.

Reverse mortgages are in some ways simpler to complete due to the fact that they do not have most of the requirements of standard mortgages. In the US, before the process can be initiated, all applicants are required to seek free financial counseling to insure that every aspect pertaining to the reverse mortgage process is completely understood. To qualify for a loan the only details to be considered are the age of the youngest applicant, the value or equity in the home, existing mortgages on the home and the type of real estate to be mortgaged.

As mentioned above, the loan ends when the owner sells the house, moves out or is away from the property for a period longer than 12 months. Loan conditions can vary considerably so other restriction might diverge. At this time, the lender will sell the house and the reverse mortgage will be paid with the process of the sale. In some cases, due to the increase in value of the home, if the processes exceed the loan amount, the owner is entitled to the difference. If the owner has passed away, his heirs will receive the money.

The negative aspects normally associated with reverse mortgages are the high upfront costs required when initiating the process and the fact that interest is added to the loan balance each month. Lastly, an added negative facet is that heirs are left with fewer assets seeing as reverse mortgages use up the equity in of the home.

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