A Reverse Mortgage

Category: Finance, Mortgages.

There is a lot of confusion between the terms" reverse amortization mortgage" and" reverse mortgage. " Compounding the confusion is the fact that the word" amortization" is probably the hardest word in the English language to spell. As a result, many people just leave the amortization part out, and do web searches for reverse mortgages when really what they want to find out about, and hopefully learn to avoid, are negative amortization mortgages.

It is commonly written by some very intelligent folks as amorazation or amerazation. On the other hand, some people may be interested in a reverse mortgage, but end up being solicited by a throng of crazed mortgage brokers who want to sell them a negative amortization mortgage. A reverse or negative amortization mortgage. Let's see if we can help lift the fog on these confusing terms that describe a couple of very dissimilar types of mortgages. A negative amortization mortgage is sometimes referred to as a reverse amortization mortgage. This early stage is commonly referred to as the negative amortization or negam portion of the mortgage.

With either terminology, what happens with this type of mortgage is that the principal owed on the mortgage is allowed to increase in the early stage of the mortgage. This negam stage usually lasts 3 to 5 years. This 5- year period is, the negam period, of course. For example, a borrower takes a mortgage on his/ her property for$ 300, 00Under the terms of the mortgage, he/ she will be required to make the minimum monthly payment of$ 9899 each month for the first 60 months, or 5 years of the mortgage. When you calculate the interest rate for this negam period you' ll find that it is 173% ! Under the terms of this particular mortgage, the interest rate increases to 75% and that's not all!

When the negam period ends, the party, basically's over. The interest rate has been 75% all along, but the borrower was not obligated to pay this much during the negam stage of the loan. Now, the principal that, 5 years later was originally$ 300, 000 has ballooned to$ 369, 2425! So, what happened was, the interest that wasn' t being paid during the negam stage was being added on to the principal of the mortgage. Let's run the numbers for the post negam or regular stage of this mortgage. So now, there are 25 years left for the borrower to pay$ 369, 2425 at 75% . The term of the mortgage is 30 years.

This will require a minimum monthly payment of$ 2, 7899, or exactly$ 1, 800 a month more than the borrower has been paying. There are many variations to how a negam works, but with every one, the monthly payment starts small and the principal increases in the negam period. These numbers are the exact numbers taken from an existing negative amortization mortgage. Then, in the regular period, the required monthly payment increases, 3 or even, sometimes to 2 4 times its original amount. A reverse mortgage was devised to help retired people augment their income. A reverse mortgage.

This type of mortgage is available to people who are 62 years of age and older. The person taking the reverse mortgage is not required to pay anything back on the mortgage, but sometimes there is a time limit to which he/ she will receive payments on the reverse mortgage. With a reverse mortgage the retiree sells off some of his/ her equity in their home and can opt to receive the payment in a lump sum, or as has, as monthly payments become most common, a line of credit to be used at any time for anything. Many times a reverse mortgage is structured where a person sells his/ her equity and in return will receive monthly payments for life. So, if all the equity has been used for a reverse mortgage, the deceased person will not be able to leave the home to anyone. Of course, after the homeowner, in this case is deceased, he/ she cannot leave the equity, which has been sold in the reverse mortgage to his/ her descendants. Despite that drawback, a reverse mortgage can be great tool for a retired person to use as a way to add more income to his/ her pension and/ or social security.

On the other hand a reverse or negative amortization mortgage was devised, as a way, in my opinion for banks and other lenders to drum up more business by qualifying borrowers who may eventually end up in foreclosure because of them.