Senior homeowners have the choice of getting a reverse mortgage, which allows them to convert part of the home equity into income that they can use. There are a number of factors that will affect the final amount to be given to the homeowner. This financial tool is called a reverse mortgage, because instead of paying regular mortgage to the lender, the homeowner is getting payments from a lender. The payment and interest on reverse mortgages are paid off when the property is sold. Here are some of the advantages that people can experience when getting a reverse mortgage:
Get some help with the existing debts on your home
Whether you incurred debt on your home equity because of mortgage costs or any other costs, reverse mortgages can help you pay off your debts. Most lenders will only allow reverse mortgages if it is the first and only lien of debt on the property. The advantage of reverse mortgages is that they can be used to pay off and clear existing debts on the property. Homeowners who qualify for a $100,000 reverse mortgage can pay of a $80,000 mortgage balance and still have $20,000 in non-taxable income. Those whose debts exceed the reverse mortgage amount, though, may have to settle the balance by paying out of their pockets.
Get a plan that fits you
Another advantage to reverse mortgages is that the plans offered by lenders are often flexible. There are basically three types of reverse mortgage plans. First is the lump-sum payment plan, in which the lender gives the homeowner a lump-sum payment based on the home equity. Second are multiple payment plans. In multiple payment plans, homeowners can choose to be paid a fixed amount periodically. The periodic payments can be made over a specified duration of time, or they can be fixed for periodic payment for as long as the homeowner occupies the home. Finally, reverse mortgage lenders also allow for line of credit payment. Homeowners can choose to have a combination of the three payment types mentioned here.
Reverse mortgage is a type of non-recourse financing
One of the biggest advantages of reverse mortgages is that the total amount owed by the homeowner cannot exceed the value of the home upon appraisal. Payment for reverse mortgages is only made when the homeowner leaves the property for an extended period of time, when the homeowner sells the property, or when the homeowner passes away. What remains of the home equity is paid to the homeowner’s estate.