If you are wondering, ‘what is a reverse annuity mortgage?’, don’t worry… you are not the only one.
Simply put a reverse annuity mortgage is a loan. It is a loan that is secured against the value of your home. It allows the homeowner to start using some of their home’s equity, without having to sell their home.
How does a reverse annuity mortgage actually work?
Once you have pondered the question, ‘What is a reverse annuity mortgage?’, it’s time to dive in and figure out how they operate. In most cases, these loans are available to homeowners aged 55 or older.
The total amount that the homeowner will receive in loan funds depends on the value of the home, where it is located, the borrower’s age and if there are any mortgages or loans secured on the home already.
The whole purpose of the reverse annunity mortgage is to turn the equity in the seller’s home into a regular and dependable source of income.
How flexible is a reverse annuity mortgage
Not all reverse annuity mortgages are created equal. There may be differences with some of their features, and some act similar to an actual line of credit. There can be a minimum monthly amount that you can receive. For example, $1,000 a month. But you can always take more if you need it.
You can often stop or start receiving payments at any time and you may even have privileges that allow you to pay a lump sum every year. Sometimes the lump sums that are allowed can be up to 10% of the outstanding principal.
Often you can increase or decrease the monthly amount you receive and you only pay interest on the amount you have borrowed, not on the entire amount that has been lended to you. This is a very important point when you are understanding what a reverse annuity mortgage is.
Who would need a reverse annuity mortgage?
What is a reverse annuity mortgage? A reverse annuity mortgage is a great way to supplement your retirement income. Retired Americans often find that they have not saved enough in order to make it comfortably through their retirement. With their government and/or private pensions, they still do not have enough money.
Many pensions don’t keep up with inflation, so it can be extremely challenging to survive without some supplemental financial help.
Reverse annuity mortgages help a wide range of people to relieve their financial worries. People can use this extra income to:
- Increase monthly cash flow to have more money in the bank
- Help to pay monthly bills, loans, and groceries
- Pay for home maintenance
- Maintain and even improve current lifestyle
- Take a bucket list vacation or regular trips to your favourite destination
- Pay for routine and/or home health care products and services
- Enjoy retirement
The advantages of a reverse annuity mortgage over a regular loan
It is not uncommon to find many retired Americans living in a home whose value has been constantly appreciating, however with an income that has stayed the same or decreased over time. A reverse annuity mortgage allows these proud Americans to tap into that equity and turn some of it into income.
One of the greatest advantages of reverse annuity mortgages is that they do not require regular repayments! You read that correctly!
You do not have to pay anything against the loan until you sell your home or move out. This is an important advantage in that it provides regular income with no negative impact on our your cash flow.
What is a reverse annuity mortgage? This special type of mortgage also allows you to draw your approved loan sum in small amounts. ie: $1,000 per month or whatever amount you decide. This means that you only pay interest on what you have borrowed.