Reverse Mortgages

What is a reverse mortgage? How is it different than a traditional mortgage? A reverse mortgage is a way of tapping into equity in a home without having to sell it or make payments towards a new loan.

A traditional mortgage, as you know, has the following traits:

1. Used to purchase a home

2. Has income requirements

3. Requires monthly payments to repay debt

4. Homeowner uses income to make those payments

5. Debt is reduced with each payment

6. Equity is increased with each payment

7. When the mortgage is paid in full, the equity is the same as the value of the home.

A reverse mortgage , on the other hand, has these characteristics:

1. Used to provide homeowner with cash

2. No income requirements since there are no monthly payments to be made

3. Homeowner remains in the home

4. Debt is due only when the owner dies or moves

5. Debt increases on a monthly basis

6. Equity decreases as debt increases

7. Owner may have no equity at time of death or move.

Reverse mortgages are primarily utilized by senior citizens in retirement and are looking to supplement their fixed incomes by tapping the equity in their homes. Of course, other options are available to get cash, such as selling the home and moving into a less expensive home. This, however, may not be an attractive option for a homeowner who has lived in a home for a long time.

As always, your comments are welcome!

Brought to you by Professional Mortgage Group, Inc. in Columbia, Missouri