Traditional and reverse mortgages are bookends of home ownership. One helps people buy a home and gain equity in it. The other turns equity to cash.
Do traditional and reverse mortgages have anything in common?
Yes. They are both mortgage loans offered by lending institution such as banks and mortgage companies. It is their funding, repayment methods and target customers that set them apart from each other.
what is one of the differences of a traditional mortgage?
Their targeted customer base is one. The traditional mortgage is designed to help people acquire a home without a high down payment or high monthly payments. It benefits younger customers just starting their careers. It gives them a residence that will give them wealth in the form of equity over time. Traditional mortgages stretch out the repayment period to 20 to 30 years. The lenders can do this with confidence since the house is the collateral on the mortgage. If borrowers default on the payments, the house can be foreclosed and the borrowers lose their equity.
What kind of customers are targeted by reverse mortgages?
The first requirement of a reverse mortgage is the applicant(s) must be at least 62 years old. These mortgages are meant for homeowners that have equity in their homes and would like to access some of it without selling their home. Reverse mortgages require no payment as long as the borrower lives in the house. When the borrower dies or is admitted to a nursing home, the house is sold to pay off the principle and interest on the reverse mortgage. Any remaining sales proceeds goes to the estate.
What makes the reverse mortgage so popular?
Most Americans do not have other large assets beside their home. Reverse mortgages allow them more independence and flexibility in their retirement
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