Welcome to the Investors Trading Academy talking glossary of financial terms and events.
Our word of the day is “Reverse Mortgage”
A reverse mortgage is a special home loan product that allows a homeowner aged 62 or older to access the equity that has accumulated in their home. The home itself will be the source of repayment. The loan is underwritten based on the value of the collateral home and the life expectancy of the borrower. The loan must be repaid when you die, sell your home, or no longer live there as your principal residence.
A reverse mortgage provides income that people can tap into for their retirement. The advantage of a reverse mortgage is that the borrower’s credit is not relevant, and is often unchecked, because the borrower does not need to make any payments. Because the home serves as collateral, it must be sold in order to repay the mortgage when the borrower dies. These types of mortgages have large origination costs relative to other types of mortgages. These costs become part of the initial loan balance and accrue interest. Senior citizen borrowers with good credit should carefully analyze the options of a more traditional mortgage, such as a home equity loan, against a reverse mortgage.
By Barry Norman, Investors Trading Academy – ITA