By Adil Esmail
With all of the commercials running on television lately,
you've probably heard of companies extolling the benefits of a
reverse mortgage. Usually geared towards seniors the reverse
mortgage is portrayed as being the answer to your retirement
dilemma as you will have no payments to make. Just enjoy your
money. But what actually is a reverse mortgage and more
importantly is it right for you?
A reverse mortgage can be broken into several different facets.
You can break it into funds for monthly income, a line of
credit, reserves, financing fees and insurance fees. To help you
better understand how a reverse mortgage works, let's will go
over during the course of the reverse mortgage, at closing, and
in the future.
You will find that over time, you will enjoy the many benefits
a reverse mortgage has to offer. Keeping part of the reverse
mortgage as a line of credit can help you manage financial
difficulties. And in most reverse mortgages the line of credit
will grow over time. This can be particularly beneficially for
those who do not have as money saved for their retirement years
as they would like.
You will want to determine what your annual percentage rate is
to figure out the cost of money. In order to calculate this,
estimations must be made about how much cash you draw from the
reverse mortgage. Typically, a reverse mortgage is expensive in
the short term but great in the long run.
At closing of the reverse mortgage, the value of your home is
summed up by everything mentioned above. The funds for monthly
income, line of credit and so on make up your home value. The
funds for monthly income, the line of credit, and reserves make
up the majority of a reverse mortgage. Everything else equates
for the rest of the pie, per se.
As for the future of a reverse mortgage, equity reserves, line
of credit and income received are going to make up the bulk of
it. During the course of a reverse mortgage, you are not going
to have to make any payments. This results in all interest
accruing. Each month, the interest expense will be added to the
balance of the loan.
As you continue to receive case from the funds for monthly
income, over time these funds will begin to dissipate and
shrink. But because of mortgage insurance, monthly income will
continue regardless of whether the funds shrink or not.
As for the reserves, they can increase, decrease or completely
run out. All of this depends on the interest rates and the
change in value of your home. If your home value changes
drastically, you can expect the reserves to change as well.
The reverse mortgage strategy is fairly simple as it deals with
six different variations. The sums of these six facets make up
the mortgage and determine how you will settle. If everything
goes accordingly, you can benefit greatly in the long run using
the reverse mortgage strategy. As with will any financial
vehicle it is always best to speak to a qualified professional
before you make your final decision.
About The Author: Adil Esmail is a real estate professional
specializing in the Markham Real Estate market and a source for
up-to-date real estate information. For more information on the
Markham Ontario real estate market feel free to contact Adil