The downturn in the economy has made a dramatic impact on the investment portfolios of many individuals. One segment of the population that is very sensitive to these downturns are individuals over the age of 62 who are in need of a continuous cash flow to maintain their finances.
Reverse mortgages have gained popularity as a source of tax free cash that will compliment any investment strategy. Before an individual makes any decisions they should first consider the ramifications of this mortgage.
When a person enters into one of these agreements they do not have to repay the loan so long as they live in their home. The only time the mortgage will need to be paid back is if the home owner is placed in a long term care facility, sells the home or dies. While not having to make a payment will provide great cash flow flexibility the home owner will need to realize that interest is accruing on an ongoing basis.
While on the topic of interest this is something that must be discussed. Interest rates have been the lowest in decades however most reverse mortgages offer a variable rate mortgage. What this means is whenever the government alters the prime lending rate it will have a direct impact on how much a person must pay.
Something else to consider is the total amount that an individual is able to borrow. There may be a need to be an appraisal done on the property. With the prices of real estate dropping many home owners would be surprised at just what the fair market value of their home is.
With a reverse mortgage a home owner will usually be able to borrower up to 80% of the value of their home. Some lenders will enable a borrower to take out more equity.
A home owner should inform their heirs that they do have this mortgage in place. This will help prevent surprises in the event the home owner passes away. A great reason that people do take these mortgages is to give money to their loved ones to enjoy instead of waiting till they pass away. They are able to do this since the money from this loan is tax free there is no fear of any estate taxes when compared to selling the home after the property owner passes away.
It's recommended to speak with a qualified consultant to find out what is the best solution for the property owners particular situation.
Rebecca Jones is a financial blogger and contributing writer for payday loans
