A reverse mortgage is true in its name because it is complete reverse in its nature from the other mortgage product. Most of the mortgage deals prefer that the applicant should be young and act reluctant towards the older borrowers.
A reverse mortgage is available to aged people because this product is specifically designed to help elderly people. The mortgage does not give them the burden of instalments; in fact, a lump sum amount is paid off at a specific time.
How does reverse mortgage work?
A reverse mortgage works differently, and that has a reason that is safety to the older people from homelessness.
- The borrower buys the house, but there is no monthly payment.
- The payment of the mortgage is made when either the borrower dies or shifts to a care home.
- The payment is taken by selling the property.
As the incident of death or moving to a care home is uncertain in its occurrence, the reverse mortgage has a vague term.
Benefits of reverse mortgage
For the target beneficiary that is the older people, there are many benefits of the reverse mortgage. A one-by-one mention of them is enlightening if you are also looking for a reverse mortgage.
- People with retirement plans can always include property buying through a reverse mortgage in their plan. Without paying any instalment, they can have a roof to live in.
- There is no threat of repossession of home by the lender. It is because the structure of the mortgage does not allow the lender to do so.
- You can invest more money in other investment or retirement products because there are no expenses on the mortgage side. Unlike other older people who keep paying their home loan instalments and compromise in basic desires, you can enjoy life.
- The biggest benefit is that the borrower can also take out the payments now and then. However, that comes under the tax rules, and charges may apply. But isn’t it a great benefit? Certainly, it is.
More benefits may come to your mind when you exploit the reverse mortgage for your home purchase.
Eligibility rules for a reverse mortgage
The rules are quite different from the other mortgage options. Here is the list of the basic rules, but some differences are always there depending on the lender.
- The primary applicant should be at least 62 years age.
- The property for which the applicant is applying a mortgage should be the only property.
- The applicant has to live in the home as the homeowner or primary resident
- The applicant will use the property as a single-family home
- If there is any other mortgage, it should be paid off. Usually, older people become co-applicants for their children; this rule is specifically applicable to them.
The list can be longer according to the financial conditions of the borrower and also the age factor.
Types of costs/charges involved in a reverse mortgage
The types of costs are more or less similar, but it is better to have a look at them.
- Advisor/broker fees
- Property valuation
- Arrangement fees
- Legal costs
- Completion fees
- Property taxes are involved
There is no additional cost, and you should keep this in mind to avoid misguiding deals while taking a reverse mortgage.
What does the lender get in return of the mortgage deal?
To be rational, the reverse mortgage (as you can see) is designed to help the older people have a roof majorly. Technically it is not a product from which the lender can expect to get a benefit. There are no repayments, and interest rate calculation merged in instalments because there is no monthly instalment.
The lender gets the payment when it sells the property after the homeowner dies or leaves the house to live in-home care. The risk is if the house value increases the lender is in profit but if the market is down the lender bears a loss.
Difference between the reverse mortgage and traditional mortgage
Many borrowers are confused about the dissimilarities between the reverse mortgage and traditional mortgage. Here are the points that explain the difference.
|Reverse mortgage||Traditional mortgage|
|A reverse mortgage is for British Seniors, and only older people can apply for it. Minimum age limit is 62.||A traditional mortgage usually prefers the younger applicants to lessen the risk. Minimum age limit is 18 or 21 for some lenders.|
|There are no monthly instalments.||There is a monthly instalment, which is a mix of interest + principal amount.|
|The borrower has no threat of repossession until he is living in the house.||The borrower has to pay instalments otherwise; the house can be repossessed.|
Most of the reverse mortgage lenders are associated with UK Equity Release Council. However, you can easily find them through a mortgage broker. There are the numbers of choices available in the lending market, and there is ample assistance available with no cost if you pick a broker with no fee.