The economic recession has hit everyone in the USA hard and has affected everyone in the world. Different topics gained much popularity over recent weeks due to these economic developments. Mortgages are a topic of interest for many people, especially as it seems that there is much confusion to the topic itself. We will try to clear some of this confusion and explain what a reverse mortgage really is.

A reverse mortgage is considered as a loan available for seniors and is usually used as home equity that is released as one large or many small payments. The obligation to pay back the mortgage is deferred until the owner dies, the home is sold or the owner leaves (for example into a senior citizen care).

Contrary to a normal mortgage, where the homeowner makes monthly payments to pay off the house, in a reverse mortgage, the interest is added to the lien of the property. If the owner receives monthly payments, the debt on the property increases each month for example.

In the USA, a person wanting to take out a reverse mortgage needs to be at least 62 years of age. There is no minimum income or credit requirements set but people looking into applying for a reverse mortgage should make sure that they qualify for the loan before investing the time.

The amount of money that will be available after a reverse mortgage has been taken out is determined by five factors. First the appraised value of the objects and whether there are any repairs that need to be done. Second: the interest rate as determined by either the U.S. Treasury 1 year T-Bill, the LIBOR index or 1 Year CMT. Third is the age of the senior. Generally, the older the senior, the more money he or she will receive. Four is the payment plan, whether the payment is taken as line of credit, lump sum, or monthly payments. Each one of these variations has their own advantages and disadvantages, but explaining all of these would be beyond the scope of this article. Last but not least, the value of property and whether that value is higher than the national loan limit.

The costs associated with getting a reverse mortgage from a private sector lender can exceed the costs of other types of loans. The exact costs depend on so many factors that a specific example would not be appropriate, but for the most popular reverse mortgages, the following will accrue for sure:

You will need a mortgage insurance (2% of the value), origination fee (2% of the first $200,000, 1% thereafter), title insurance, title, attorney and county recording fees, real estate appraisal ($500) and a survey ($500). In addition to this there might be a monthly charge for the service, ranging from $24-55 per month.

As you can see there are many different aspects to a reverse mortgage and many of them are not as pleasant as you might have expected. The decision to apply for a reverse mortgage is a very big one so make sure that you educate yourself before doing so.

Author Bio: Do you know What is a Reverse Mortgage? Everything you wanted to know about Reverse Mortgages now in one place. The right information can protect you from many mistakes.

Category: Real Estate
Keywords: Reverse Mortgage,Senior,Loan,Appraisal,Insurance,