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Understanding Reverse Mortgages

Fifty-dollar bills stacked in the shape of a houseReverse Mortgages are usually marketed in an appealing way. This could lead to someone asking how is it possible to pay a mortgage in reverse?

A reverse mortgage (also known as HECM, Home Equity Conversion Mortgage) works much like a regular mortgage but instead of you making a payment each month to the lender, the lender sends you a payment.

This type of mortgage is available to homeowners who are the age of retirement and older. Essentially, the mortgage holder gets cash installments sent to them based on the equity in their home.

Retired people consider the HECM as a way to maintain a steady flow of cash throughout retirement. A reverse mortgage allows retirement age homeowners to stay in their houses simultaneously using their built-up equity for any purpose such as: fixing up the house, catching up with property taxes and even just paying bills.

Home Equity Conversion Mortgages are loans that rise in debt. This means that the interest owed is compounded to the balance of the principal loan on a monthly basis since it’s not paid on a current basis. That being the case, the total amount of interest one owes incrementally and quite significantly compounds with time as the interest increases. Additionally, reverse mortgages may use up a large portion of, or even all, of the equity in your house.

There are costs that are also associated with the loans and the three types of loan plans, either insured by the FHA, insured by the lender, or origin feeds that are uninsured. Note that the insured plans also require payment of  insurance premiums to secure the loan and a portion of lenders impose mortgage service charges.

Lastly, homeowners need to be aware that if they have to move soon after taking on the reverse mortgage, they'll almost certainly wind up with significantly less equity to live on than if they had simply sold the house in normal conditions. This is specifically true for loans that end in 5 years or less.

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