The Advantages of a Home Equity Conversion Mortgage
A home equity conversion mortgage is basically a second mortgage loan, normally secured by a home property, which allows the homeowner to access the property’s unenforced value. Unlike a first mortgage, which puts the homeowner on the hook for the entire value of the home, a second mortgage allows only a portion of it to be borrowed. These mortgages are often marketed to older homeowners, who benefit from them for various reasons. Some of these reasons include: the current interest rates are less than attractive; the homeowner would like to remove their debt burden but doesn’t want to; or, they can get higher returns from the sale of the home in place of their first mortgage. These mortgages may be the best choice for seniors who are at retirement age and who already have a home worth considerable, but who need a bigger income.
There are several reverse mortgages allow homeowners to convert their home equity. These loans allow you to pay lower monthly payments as long as you remain the homeowner. However, there are fees attached to such transactions. As with all loans, there may also be penalties for early repayment. The terms may be specific to a particular lender.
A home equity conversion mortgage is usually designed for borrowers who have adequate equity built up in their home but who need additional funds to pay on ongoing expenses. Usually, these loans are obtained for renovation, repair or remodeling, as well as for education, medical expenses, or any other expense that is considered “important.” Generally, borrowers must be 62 years of age and currently in good health. In addition, borrowers must own their home. Borrowers need not be a homeowner to apply.
The primary difference between a traditional home equity conversion mortgage and a reverse mortgage is the amount loaned, as well as the length of time for which the loan is repaid. For the reverse mortgage, borrowers must own their homes; however, for the traditional mortgage, borrowers only need to own their mortgage. In addition, borrowers can borrow against the equity in the home for the purchase of an automobile. Thus, borrowers age 62 years old, with a current home equity loan, can borrow up to the maximum amount allowed under the loan’s terms.
With a home equity conversion mortgage, the title to the borrower’s home serves as security for the loan. Borrowers must use the house as collateral when applying for a reverse mortgage loan. A good credit history is preferred; however, it is not essential. Furthermore, if the applicants qualify for the home-equity option through a nontraditional lender, they may be able to obtain a traditional reverse mortgage loan as well.
Generally, a nontraditional lender is one that specializes in high-risk loans. These lenders typically set high interest rates as well as fees for their services. However, many homeowners find them to be very helpful because they have better payment options than traditional lenders. Borrowers can get much lower payments than they could from a bank or other similar institution.
Another advantage of a home equity conversion plan is the ability to lock in a lower monthly payment while you are still working. This allows you to make adjustments to your budget easier while your nest egg is increasing your retirement income. By making the monthly payments on the reverse mortgage at a lower rate, you will be able to increase your retirement income. In addition, if you do not have enough income from employment to cover all of your bills, a reverse mortgage can provide you with extra money each month to help you meet these bills.
Aptly, a proprietary reverse mortgage plan can be used to convert a conventional, single-purpose reverse mortgage into a reverse mortgage with a longer repayment schedule. However, you cannot use this type of loan for debt consolidation. Also, it is not advisable to take out a loan that requires you to pay back more principal than you paid in the single-purpose loan.