What is Reverse Mortgage?
The elderly population may find it difficult to obtain a loan from the bank. The bank thoroughly examines the financing and loan repayment objectives before placing requirements on the borrower to obtain collateral for repayment of the loan. These conditions do not make it easy for the elderly to receive a loan or mortgage from the bank. Fortunately, there is a solution to this problem in the form of a reverse mortgage.
A reverse mortgage allows someone to obtain a loan from the bank at a value that is no more than half the value of the property. This loan is typically for the individual who lives in the property in his possession and when this property does not have a mortgage.
In a regular mortgage each month, the shareholders’ equity decreases, and the value of the asset rises. However, a reverse mortgage, as one can understand from its name, works backward. In a reverse mortgage, you can make the property cash value, and there is no need for monthly loan repayments. The loan can be obtained in three ways:
- As a credit line account, as required
- As a fixed monthly amount
- As a single lump-sum payment
As noted, unlike a regular mortgage, a reverse mortgage borrower is not required to pay the bank monthly payments for the repayment of the loan. This is because the bank guarantees the return of the loan by the property itself and makes sure to record a warning note in favor of the bank in the property records. The loan and interest are ultimately paid when the property is sold, either because the borrower sold the house or he passed away.
When a property owner dies, his successors are the ones who need to repay the loan and interest within a period of one year from the date of death.
Heirs can repay the loan from their own money or from the money they will receive from the sale of the inherited property. If the heirs do not want or cannot repay the loan money, the bank can sell the property to repay the loan, and the balance of the money will transfer to the heirs.
Reverse mortgage advantages
A reverse mortgage allows people over 61 to make their home cash, especially those who live in a property that is valuable but have difficulty financing the current expenses of the house.
Older people who are no longer paid monthly, or adults who do not have life insurance that can guarantee repayment of a loan, will find it difficult to take out a traditional mortgage loan. For these individuals, the reverse mortgage money can be used to finance medical costs and treatments.
Lines of reverse mortgage image
A reverse mortgage is a special loan intended for people aged 60 and over. Its main purpose is to pledge the residential property for a percentage of it in cash, with the repayment being made by the heirs of the asset upon the death of the borrower. The loan is in considerable amounts relative to the value of the property, usually from 15% at the age of 60 to 50% at the age of 90. The financial conditions of the mortgage are convenient and suitable for the needs of the elderly and those who want a high quality of life in later years.
The loan amount is taken in cash while providing the home as collateral, with the maximum loan amount determined by the age of the recipients of the mortgage and the value of the asset. The principle here is that loan recipients are not required to make monthly repayments, with repayment possible up to a year from the time of death. It is important to emphasize that the residential property remains owned by the lessee at all times, although in coordination with the company that gives the loan, they can sell it. The loan bears fixed interest linked to the consumer price index.About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.