The reverse annuity mortgage is popularly known as a reverse mortgage. They are also called home equity conversion mortgages. This concept is getting quite popular in recent years where a homeowner wants to get the equity out of a home. In other words, a homeowner chooses to borrow money against the equity of the home. This is only applicable for older people (aged 62 years or more). They have an option to get money as a monthly installment or as a lump sum depending upon their financial situation.
A reverse annuity mortgage is the opposite of the usual mortgage plan. In a regular mortgage, equity of the borrower increases as the mortgage is paid off where as in a reverse mortgage, equity of the borrower is decreased as more money is borrowed over time. This is a good option for senior citizens where they can get some money against the equity of their property. While the owner can continue to live in the same house, this money can be used by them for living expenses or medical costs. Most people who go for a reverse mortgage opt for monthly installments which suit their financial conditions.
A lender with such a mortgage plan will not get anything more than the value of the home which is agreed by both the parties of the agreement.
Qualifying for reverse annuity mortgage
The first requirement of a reverse annuity mortgage is that the borrower should be more than 62 years of age. If you have more than one owner of a property, all of them need to sign up the paperwork required for application. The owner should have a full equity of the home without any liabilities to pay like the past mortgages, loans etc.
Just like any other mortgage, reverse mortgages are also dependent on some variables. These factors are important to decide about the amount of money you will be able to borrow. Every lender can have a different policy regarding this. The amount you get on this mortgage essentially depends on the value of your property as well as the lender you choose. Sometimes the same lender can have different mortgage programs so you can compare them to find something that suits you in the best way.
Besides this, your payment plan is also very important factor here. Some people prefer to have monthly payments where as some like to get their money in lump sum. You can calculate and compare both the options to know what gives you a better return. The age of the borrower is also considered when talking about a reverse mortgage. Older people tend to get more money in general. The amount of equity that you hold in a property is the most important point here. The larger your equity, the more money you will get. Reverse mortgage interest rates are also dependent on a lot of these factors.
When you are choosing the payment options, there are three types of payments you can choose. First of them is the credit line which means that you can borrow the money as and when you need it instead of a fixed monthly installment. Second option is a single lump sum payment which is usually a onetime payment. Third option with payments is the monthly payments which are the most popular option as well. A lot of people find it more comfortable to get monthly payments.
There are many different types of reverse annuity mortgages which are offered by different financial institutions and govt. organizations. Getting a mortgage from a private lender is always more expensive but they have much lesser formalities when you compare them to any govt. lender. Having fewer restrictions makes them a popular option. Mortgage plans by Federal government are quite cheap but you can find other cheaper option with state governments. These mortgages can also be termed as Federally insured Home Equity Conversion Mortgages (HECM). The mortgages offered by governments are cheaper but then they also have much more restrictions. You should check out all these options before you decide to settle down with your mortgage.
Paying off the reverse annuity mortgage is another aspect which is confusing for some people. There are a few ways in which these loans can be paid. Just like any other loan, these mortgages should also be fully paid off. This kind of a mortgage is usually paid off in case the property owner sells of the property, leaves the property or dies. In any case, lender either gets the money back or takes up the ownership fo the property. There are some other rules which apply to such agreements. Before you enter in to a agreement it is best to know about all such rules and regulations so that you can make the right decision for yourself. Getting a reverse mortgage is not tough but you should know about all the aspects of such mortgages so that you can benefit from it.