Not yet registered? Create a OverBlog!

Create my blog

How does a reverse mortgage work in the UK?

A reverse mortgage works in a completely different way from a standard mortgage. Rather than moving into a property and paying for it over time, the occupants take out a loan on the equity of the property which they are already resident in, and the loan is cleared upon the death of the occupants. To find out more about a reverse mortgage and how it works, read on.

What is a reverse mortgage?

A reverse mortgage loan is an equity-based loan, whereby the occupants of a property take out a loan which is based upon the equity in their property. For instance, if a home owner has already cleared their mortgage on a property with a market value of £300,000, then they have an equity (in theory at least) of £300,000 and can take out a loan for this amount. They will not have to make any repayments on the loan. However, when they die the loan will be settled, prior to any payment made out to family members. How does a reverse mortgage work? The mortgage lender assesses the value of the property and provides an equity loan based upon a conservative estimate of the home's market value. Since the home owners could be remaining in the property for some time and property values sometimes reduce as well as climb, the mortgage company protects its interest by proving a conservative estimate on the property. So in the case of £300,000, they may provide a maximum loan of perhaps £250,000. Furthermore, the occupants have to be at least 62 years old. Finally, there are terms and conditions, so for instance, if the homeowner decides to leave the house, then they must sell the house and clear the loan. Moreover, the loan is given under the condition that the house be maintained and insured at all times. As for the loan schedule, the occupants do not have to pay out anything as long as they are alive, and they can receive the loan in one bulk payment or they can draw it down on a monthly basis if they prefer. The best reverse mortgages provide the homeowners with the option to draw down equity as they require. In this way, they only assume debt in an incremental way. This has ramifications after death, because the loan and its interest will have to be cleared prior to family members receiving any inheritance money from the sale of the house.

Disadvantages

Reverse mortgages work well for many retired people. However, it is not a good product if the occupants decide to leave the property. Homeowners should think carefully about all possible ramifications prior to taking out a reverse mortgage.

Same category articles Banking

Review: Nationwide online banking

Review: Nationwide online banking

E-banking is definitely an online service that every bank customer should benefit from. Either you are a frequent bank customer or you visit your local bank branch once in a while to make a deposit or pay your bills, get informed for your bank’s Internet banking services. If you are a Nationwide customer, read the following article and find out all that you need to know about the Nationwide online banking.
How to get a low auto loan rate

How to get a low auto loan rate

Getting a low auto loan rate is the key to paying less on your auto over time. The higher your rate is, the more money you will pay in additional money known as interest, on top of your principal loan balance. There are certain things that you can do to try and ensure that you receive the lowest auto loan rate available to you.
An introduction to SBI home loans

An introduction to SBI home loans

A roof over your head is definitely one of the vital necessities since human beings have started their journey on earth. Although modified with time, this need has not changed at all. The main attribute to be taken into consideration is that now we want a “home” rather than a house and the SBI makes our dream come true. This article gives you an introduction to SBI home loans.
Guide to buying your first home

Guide to buying your first home

Buying your first home is usually an exciting undertaking. Becoming a home-owner is the beginning of independence for many. However, under the wrong circumstances, it can become a burden. Buying a home is not a commitment to be entered into lightly. You must take all possible options and eventualities under consideration.