An Overlooked Way for Older Americans to Buy a Home
NEW YORK ( BankingMyWay) -- Many older homeowners want to move but dread a hefty mortgage payment. There are various ways to remedy this problem, including one that has too often been overlooked: using a reverse mortgage for a home purchase. Usually, these loans are for taking cash out of a home one has had for many years.
A reverse mortgage is a government-backed loan that allows a homeowner aged 62 or older to borrow against the equity in the home -- the difference between the property's value and the remaining debt on any mortgage or home equity loan.
The borrower makes no payments. Instead, the principal and gradually accumulating interest charges are paid off after the homeowner dies, moves or sells the property. The debt can never exceed the proceeds from the property's eventual sale, so the borrower's other assets are safe. Because there are no payments, the borrower does not need an income to qualify for a reverse mortgage.Typically, a reverse mortgages is used by a homeowner who wants to stay in the home he or she has had for many years. The loan can convert a portion of the property owner's equity to cash, either a lump sum or monthly income. But there are several ways to use one of these loans to purchase another property, says Jack M. Guttentag, professor of finance emeritus at the Wharton School of the University of Pennsylvania. On his website,
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