A reverse mortgage is a loan that is an option to homeowners who have a mortgage, and are above the age of 62 years. It is an option where they can convert one part of the equity that they have to cash. This loan was introduced with the intention to help those who are retired, and don’t have enough income for basic living expense. This can help cover the health care expenses as well. There is no strict procedure as to how it can be collected.

In an ideal scenario, the loan is paid to the lender on a monthly basis, until the amount is paid completely. In the case of a reverse mortgage, the lender makes the payments to the borrower. The borrower won’t pay any money towards the house. They will receive the payments until the previously paid amount is exhausted, thus transferring the rights to the lender.

Once the homeowner applies for the reverse mortgage, the lender will make payments to the homeowners on a monthly basis. If the homeowner no longer lives in the same place, one of the following can happen:

• The heirs, or the homeowner can sell the place to settle the loan.
• The house can be refinanced to keep the place.
• The lender can sell the house and settle the loan.

Generally, homes that are older are given larger loan amounts. Houses that are comparatively more expensive, qualify for the same. There must be no other loan or debt against the house while applying for a reverse mortgage. The property needs to be maintained by the homeowner at all times.

Factors to consider before applying for a reverse mortgage

Retirement can be a tough time for many, where one is forced to make hard decisions. A reverse mortgage is an option that was introduced to make it easier for elderly homeowners with a mortgage. Here are a few things you need to be clear about before you take a reverse mortgage:

• Understand all the terms and conditions that come with the reverse mortgage.
• Choose the most viable payment option for you.
• The equity needs to be checked with a financial advisor.
• Ask about the initial expenditure.
• Keep in mind the long-term plan as well.
• Speak to your family before deciding.
• Use the money coming from the reverse mortgage wisely.
• Consider other options as well.

There are several pros and cons to taking a reverse mortgage. Despite the several advantages, it is an option you must consider as a last resort. If you have any assets or income that can help you complete the mortgage, it is a decision you have to take. Saving for retirement is a plan that you need to make for the long-term. The interest rates are often high on a reverse mortgage which may leave you at a disadvantage.