Reverse mortgages, your key to financial freedom.

Reverse mortgages, your key to financial freedom.  There are few things more frustrating than having money and not being able to spend it or use it. Imagine walking in the desert with a million dollars in your pocket but no water. You would happily swap your fortune for what you need in that moment. That is the principle behind reverse mortgages. Many people have hundreds of thousands locked into their home but struggle to buy groceries. This is especially the case of senior citizens that are retired. They no longer have the means to increase their income, having to rely on a small pension. If only they could release some of the cash tied into their home.

So how do reverse mortgages work?

Reverse mortgages is a special mortgage that provides you with money with your home as collateral. Nothing new there, sounds like your box-standard mortgage. The difference is that with reverse mortgages you don’t have to worry about monthly payments until you either die or sell your house. When you sell your house the proceedings will be used to pay your mortgage and closing costs. The balance will be for you or your families to keep. If the sale of the house does not cover the cost of the mortgage, the government will pay the difference to the lender. If the government does not provide this service in your country or area you will probably have to buy credit insurance on the mortgage. It is always good practice to ask for advice and direction to a financial adviser on the kind of mortgage that suits you best.

What kinds of reverse mortgages are there and which one suits me best?

Option 1) Tenure: This option provides the borrower with monthly payments for as long as the borrower lives in the house. This option is good for those that want to guarantee a steady income for the rest of their lives to supplement their pension or to provide basic income if they don’t have a pension.

Option 2) Term: With this option you get equal monthly payments for a set amount of time. For example you could take out a reverse mortgage to provide you with $1000 every month for the next 5 years. You will only have to pay this loan when you sell the house.

Option 3) Line of credit. This means you will be able to use the money you need when you need up to the set maximum of the mortgage. This option is great when you don’t know when you will need the loan and just want to have access to cash when and if it is needed. It is similar to a credit card with the advantage that the interest rates are much lower. It is also a good choice for borrowers that want to leave as much equity in the house as they can for their children. As the mortgage will only be for the amount used from the line of credit.

These options can then be modified to suit the specific requirements of the borrower.