How would you like a home loan that you don’t have to pay back for as long as you’re alive or for as long as you live in the house? Sounds too good to be true, but that’s exactly what reverse mortgages do.
A reverse mortgage is a loan that you make where you do not have to pay back anything for as long as you still possess the property you have purchased. Reverse mortgages provide you with cash you can use for other investments. By turning the value of your home into cash, reverse mortgages gives you virtually unlimited funds without having to move and even without repaying the loan every month.
There are several ways to get cash from reverse mortgages. You can get cash from a reverse mortgage all at once or you can opt to receive a regular monthly cash advance. You can also get cash as a “creditline” account with a a reverse mortgage. This creditline account allows you to get an amount of money whenever the need arises.
Whether or not you want your cash from a reverse mortgage be paid to you in a lump sum or in installments, the main thing is that you do not have to pay anything back until you die, sell your home, or permanently move.
Reverse Mortgage vs. Other Home Loans
In most other loans, your income and assets is checked in order to pre-qualify for the mortgage. Since reverse mortgages do not involve any monthly payments, you not have to go through these tedious prequalification procedures. Qualifying for a reverse mortgage is easy and hassle-free. There is no minimum income required and no monthly repayments. And what’s more, with a reverse mortgage, you don’t stand the chance of losing your home.
The downside to a reverse mortgage
While reverse mortgages have their advantages, they also have a downside. Since reverse mortgages do not require monthly payments, you are actually taking out equity from your home and turning it into cash.
Here’s how it works. Other mortgages require a person to make a down payment when buying a home and as the years pass, they use their income to pay back the money they borrowed. This decreases their debt and increases the value of their home.
With a reverse mortgage, everything works in the reverse. You own your home, and convert its value into cash. As you take out that cash, you thereby increase your debt and reduce your home equity.
If your home value grows rapidly and you have only one loan on your home, there’s the chance that your equity could increase over time.
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