June 21, 2024


Mad about real estate

Reverse Mortgage vs. Forward Mortgage

In the past several years, reverse mortgage loan has become one the most useful product in terms of providing financial security to the senior US citizens. What is a reverse mortgage? As it name tells, it is merely the “reverse” of regular mortgage loans. Simply put, in a regular mortgage you make monthly payments to the lender but in a reverse mortgage the lender pays you without you having to pay it back for as long as you live in your home. The loan is reimbursed when you die, sell your home, or permanently move out of your home.

“Why shouldn’t a senior just pull out on a regular mortgage loan rather than a reverse mortgage?” being a senior, you may be struck with this notion many times, but it would be a good thing if you realize the potentials of using a reverse mortgage loan over a forward mortgage.

Both the reverse and forward mortgages allow you to maintain the home ownership while you pay back the loan with interest. The only difference lies in the method of repayment. Here we’ve emphasized a few differences between reverse mortgage and a regular one:

* You have to make monthly installments while paying back a regular mortgage, this way you reduce debt and build up your home equity—whereas with a reverse mortgage you don’t have to make any sort of monthly payments, and the entire loan amount along with the interest has to be paid back when the homeowner dies, sells the home, or moves from it permanently.

* You need a solid credit score and income requirements to qualify for a forward mortgage, but no such requirements are needed in case of a reverse mortgage.Reverse mortgages basically help those who are house-rich but cash-poor.

* There are strict income check rules before you actually meet the criteria of a regular mortgage, but you need no cash for a reverse mortgage. Even if there is no money to pay the loan when the homeowner dies, the bank will simply seize the home. But there is an exception to this case as well, if the heirs of the deceased decide to pay the loan amount; the home stays within the family.

* Reverse mortgages are only available to senior citizens of 62 or above, while in forward mortgage there is no such age condition but it requires a firm income statement and job consistency. The conventional mortgage loan takes up the income while the reverse mortgage loan considers the value of the home.

These points will help you determine the best kind of loan suited to your needs. However, if you are a senior US resident, there may be many suitable options available to you if you opt for a reverse mortgage. It’s always better to check up with professional reverse mortgage lenders, who can guide you properly in making the right decision.