What is Reverse Mortgage?

What is Reverse Mortgage?

for more details visit:

https://www.quora.com/What-is-a-reverse-mortgage-loan/answer/Robert-Jackme



Normal Mortgage:

In a normal mortgage or home loan, the borrower pays for the house over the years to the bank. Reverse Mortgage is the opposite of a regular mortgage.



For Retired People:

It is a product primarily designed for retired people who are not able to support themselves but have assets in the form of             house properties.



How Reverse Mortgage Works?

There are 3 steps:



  • Step 1
  • Step 2
  • Step 3




Step 1:

The borrower mortgages the house to the lender (bank).



Step 2:

Borrower receives monthly payments from the lender for the mortgage duration. During the reverse mortgage period, the ownership vests with the borrower.



Step 3:

Borrower Dies. The house loan is paid by legal heirs and house handed over to legal heirs, or if the loan is not paid back, the bank auctions the house to recover dues.



Reverse Mortgage Loan-Enabled Annuity (RMLeA):

A Reverse Mortgage Loan Enabled Annuity (RMLeA) is an advanced Reverse Mortgage product in which the bank instead of paying you directly, pays one lump sum amount to an insurance company.



Monthly Payments:

The insurance company then makes monthly payments to you based on actuarial pricing. Monthly payments in case of RMLeA are relatively higher than a normal Reverse Mortgage product.



Pitfalls associated with Reverse Mortgage:



  1. Society Pressure
  2. Higher Costs
  3. Loan Liability if the owner moves or dies




Society Pressure:

Home is generally looked upon as a sacred place. If you talk about liquidating your primary home, it is not taken well by anybody especially children. Children see it as giving away their family home and wealth.



Higher costs:

Most banks charge a higher interest rate on reverse mortgage compared to a normal home loan and the valuation of the house is also in the hands of the bank. You may not get the real market value.



Loan Liability if the owner moves or dies:

A Reverse Mortgage becomes due in full if the owner dies or moves from the home. Paying such a high amount upfront can be difficult for both the owner and the legal heirs.





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