Reverse Mortgage

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Building up substantial equity in one's home and eventually paying off the mortgage are goals of almost every homeowner. Having spent years making mortgage repayments, people (typically those aged 62 or over) who have either fully repaid or almost repaid their mortgage may be able to extract some of the equity they have in their home and receive some money through what is known as a reverse mortgage. It's "reverse" because instead of paying money to the lender as with a regular mortgage, the lender actually pays money back to the homeowner. The lender is making a loan that is secured on the equity the homeowners hold in the property. It resembles a cash-out mortgage refinancing, but whereas a cash-out refinancing means the borrower still continues to make monthly repayments to pay off the loan, with a reverse mortgage the money to pay back the loan is "already there" in the form of the property. There are typically loan origination fees and possibly other fees associated with the reversemortgage loan; interest rates may be fixed (see fixed rate mortgage) or variable (see variable rate mortgage). Because the interest charged on the loan accumulates, the amount owed with a reverse mortgage increases over time. The reverse-mortgage loan is repaid to the lender when the house is sold, the borrowers both die, or the house is no longer their principal residence. The money to repay the loan is taken out of the proceeds from the sale of the house. If the borrowers have died, it means the amount left to the heirs is reduced by the cost of the loan plus interest charges that have accrued; reducing the estate in this way can be a sensitive issue. The amount of money that can be borrowed in a reverse mortgage depends on many variables, such as the age of the borrowers, the value of the property, and current interest rates. There are different types of reverse mortgages and many options, including how you want the money paid to you. There may be tax implications to consider as well. Reverse mortgages can be a good way for older people to tap into their home for access to needed cash, but these loans should be approached carefully. Free reverse mortgage counseling may be available to potential borrowers.