How do you pay off a reverse mortgage?
You may have heard retirees describe themselves as ârich in assets but poor in moneyâ. Essentially, this means that even if they have their own home, they might have a hard time making ends meet. Sometimes even maintaining their home can become a financial burden.
Some retirees use reverse mortgages to access an income stream. But what is a reverse mortgage and how do you pay off a reverse mortgage?
What is a reverse mortgage?
A reverse mortgage allows retirees to borrow money using their home as collateral. Depending on the valuation of your home, you are allocated a specific amount in the form of a loan, which you can withdraw in different ways. For example, you can take the money as a lump sum, regular income, a line of credit, or even use a combination of all three.
What makes this loan tempting for retirees is that while you can still own the house and don’t need to make a repayment unless something called a “trigger event” occurs. produce. This includes the death of the owner, the departure of the borrower from the property or the breach of a clause.
It is best to read the terms carefully before signing a reverse mortgage agreement, as it may contain a clause requiring you to maintain the property to a certain standard. Some retirees find this difficult in the long run. .
What factors affect the amount you owe?
While you don’t need to make regular repayments for a reverse mortgage, you need to remember that interest is compounded. This means that it is added to the amount borrowed. This quickly increases your debt over time, but the value of your property can increase as well. This can make it difficult to determine your actual fairness.
How to pay off your reverse mortgage?
Your reverse mortgage is usually paid off when you die or move to a child care center. However, sometimes if your family wants to keep the property, they can pay off the reverse mortgage and keep it. It depends on the arrangement you come to.