Nov 23

Reverse Mortgage: A helping hand at the stage of liquidity

Reverse mortgage is gaining popularity in many country today. It is a special kind of mortgage which helps a home owner to convert their house wealth into ready cash, increases their financial security by providing them cash for any purpose such as unexpected medical expenses, any unexpected events, making home improvements and so on you can also opt short term loans such as a payday loansto tackle these expenses if you are employee. It is a loan mainly for senior citizens which is opposite of basic mortgage in which lenders provide you good amount initially which can be repaid in instalments . In reverse mortgage, if you provide your home equity that does not possess any existing debt on it to the financial institutions, you can get a series of periodic cash flows for specific period of time.

The basic format for this loan is that the home owner should be of 52 years or above and have maturity period of 15 years or continue to live in the house lifelong. The home-owner will receive the EMI (equated monthly instalments) for nearly 15 years from the bank after those instalments will stop but they can live in the house.

 Features:

  • Anyone who is senior citizen according to the country of applicant can apply for this loan.
  • The maximum amount of the loan is the 60 percent value of the residential property.
  • The maximum mortgage period depends on the country of applicants like some countries give 15 years to period of time
  • You can ask for monthly, annually or lump sum amount of payments based on your requirement.
  • The lender will undertake revaluation of property for every 5 years.
  • There is no tax liability on the amount received by the reverse mortgage as amount received is loan not an income.
  • The rate of interest for this loan can be fixed or fluctuate based on the market conditions based on the rate scheme chosen by you.

How to repay loan?

In this loan no payments have to do during your lifetime. As you are not making payments during the loan term, the balance amount increases with time.  This loan is beneficial as the value of home rises  at a faster rate than the loan balance amount because home equity keeps grow.

After the death of last home owner or if they decide to sell the home the loans home to pay off as whole. If the home owner dies the ownership will be given to beneficiaries and they have to sell home or pay off the loan. After home sell the lender is paid off the beneficiaries can keep the remaining amount.

What is a loan to value ratio?

This ratio is the amount of loan the homeowner can get for the home they have pledge. Basically, the loan to value ratio is around 60 percent for most countries example if your house equity is 6 million then you can loan of amount 3.6 million.

About the Author:
My name is Evlin.  I am a tech writer .  I am into Finance :).  Catch me @financeport