Finance

What is Reverse Annuity Mortgage?

Simply put, a reverse annuity mortgage is a type of loan where you get a loan against the value of your home. This type of loan lets you cash in some of your home’s equity and you do not have to move out or sell it. A homeowner aged 62 years and up who has a good amount of home equity can borrow based on the value of his or her home and then get a lump sum amount. A reverse mortgage does not need the homeowner to make any loan payments.

The loan balance needs to be paid when the borrower dies, moves away for good or sells the house. The value of the house is set such that the loan amount does not go beyond the value of the house and the borrower or his estate will not be held liable for paying the difference in case the balance becomes higher than the value.

The value of a home can drop based on the market or when the borrower is alive for a long time.

How does it work?

Reverse annuity mortgage works by turning your home into a dependable income source. The homeowner can choose how to receive the payments and interest can only be paid when the proceeds have been received. The interest is then integrated into the loan balance and the homeowner does not need to pay anything in advance. At the same time, the homeowner can keep the house title. In this type of loan, the amount of debt rises, while the value of the home decreases.

Reverse mortgages are not taxable even though it may look like it is a homeowner’s income. The IRS looks at this type of money as a loan advance.

Getting a reverse mortgage

To know if a reverse mortgage is right for you, find a good company that can handle it and schedules for a counseling meeting. If you are planning to get one, make sure that the taxes and insurances are all up-to-date.

Pros and cons of a reverse mortgage

When you are 62 years old or older, availing of a reverse mortgage is a good way to get cash when your home is your biggest asset and you are unable to meet your daily expenses. You can still live at your home as long as you pay the property taxes and insurance. You do not have to go to a nursing home.

However, this may mean that you need to spend a huge amount of equity on interests.

A reverse mortgage can be a big help in a senior homeowner’s finances but he must understand how the entire thing works. This way, nobody can take advantage. There are loan sharks out there who might take advantage of the situation. The best way to go is to choose a reliable and trustworthy mortgage broker who has a good track record in processing mortgages.

These legit brokers can give you good advice on the best action to take and provide evaluation for you.