What is a Reverse Mortgage? Recently I was asked this very same question "what is a reverse mortgage" by a friend at a party. Then I received a couple of e-mails praising the benefits of a reverse mortgage. Then I watched Robert Wagner doing a commercial about Reverse Mortgages. I guess it was an omen for me to tell you what it is.
With that said: It is a special type of loan, used by many "older" Americans in converting the equity of their homes into cash. This can be accomplished by issuing a loan to the home owner, but the owner does not make payments on the loan. Instead the homeowner may receive a line of credit for some portion of the equity or an annuity like payment that will be guaranteed for life.
So how does this work? A first position lien is placed on the property. The loan is never paid off; instead the balance continues to grow, month after month. Upon the passing of the homeowner, the mortgage company takes possession of the house unless the heirs repay the debt.
So what are the pros? One of the benefits is if the homeowner is at or near retirement age, instead of struggling to make ends meet due to the mortgage payment can get relief. The home owner can use the equity of their home as a retirement fund without having to sell and downsize.
So what are the cons? The most important one is higher than normal mortgage rates. Generally the loan is 1-2 per cent higher. The loan origination fees are higher as well.
This is just scraping the surface. Since it is such an important issue, I will give more details about this very important subject in a follow up blog.
Interestingly, since I wrote this post I have run into about three different times where the relatives "inherited" a situation like this. The heirs did not have any money to pay off the loan and could barely hold on to the property until I sold it for them. Good thing we sold it relatively fast and they were able to have some proceeds left over. Sadly I have seen other sellers with different agents and they ended up losing the property.
If you are looking for a focused and goal-oriented Realtor in the Beverly Hills area who will help you achieve your Real Estate goals, please reach out to me directly!
If you are looking for a pet friendly Beverly Hills Realtor who can handle and sell the most difficult properties that no one else could, please reach out to me directly!! If you are considering buying or selling a home, a luxury home, luxury investment real estate, luxury vacation homes, or luxury beach properties in Southern California, Los Angeles, Century City, Westwood, West Hollywood, Beverly Hills, Marina Del Rey, Venice or Malibu, feel free to contact me at 310.486.1002 (m) or homes@endrebarath.com or visit one of my websites at http://www.endrebarath.com I contribute a portion of my commission to local animal rescue organizations.
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