Differences Between A Standard Mortgage And A Reverse Mortgage

Online, September 5, 2012 (Newswire.com) - The reverse mortgage is a type of loan that is designed to help elders who are falling short on incomes after retirement. In this case, the monthly payments required by conventional mortgages are eliminated. With a reverse mortgage, a senior home owner will not have to make any payments as long as they are still living in the house. People who have a reverse mortgage must not have other types of loans or liens on their house.

In the case of a reverse mortgage, the person already owns the house. They are paid money by financial institutions for the equity build up in their homes, and when the person dies, sells the house or moves out, their heirs of the house or the borrower themselves must repay the loan. This is very different from the traditional mortgage, in which the person who buys a house must make a down payment (paying certain percentage of the home value) and then pay rates over a long period of time. Traditional mortgages can have fixed rates or adjustable rates; it can be structured on paying a principal or on paying interest.

In a traditional mortgage, the home buyer is charged interest and has to pay it during the lifetime of the loan. In a reverse mortgage, the owner is charged interest when they begin receiving loan proceeds, but the owner does not have to pay interest until their reverse mortgage loan is due.

In a traditional mortgage home, the home buyer signs a note and borrows money, which must be paid to the person who sells the home. The buyer cannot move into the house until the sales transaction is complete. Then, the borrower has to make monthly payments over a long period of time and he will not own the home until he has finished repaying the principal and the interest. Instead, in a reverse mortgage, the borrower is already the owner of the home and they borrow against their home in order to receive a line of credit, regular payments that come from the loan's principal, or a lump sum of money.

The person getting a reverse mortgage still owns the home, but they must keep living in the house, pay their taxes and insure the home. If these conditions are not fulfilled, the loan might be paid in full, so the borrower must find a way to raise capital to repay the loan or must sell the home and move somewhere else.
A reverse mortgage is quite similar to a home equity loan.

However, home equity loans are usually second liens on homes, after a first mortgage, and they must be repaid in monthly installments.

Also, the person who takes a regular mortgage must make monthly payments, and, after a long period of time, they become debt-free at the end of their mortgage, while the person who takes a reverse mortgage is offered money and handed the bill only at the end, when the loan is due.

These are basically the main differences between the reverse mortgage and the regular one. It's not all that difficult, is it?