It’s only natural to have a change of priorities during different times in your life and according to how old you are. In the case of financial needs, for instance, young children have minor monetary concerns. Teenagers, on the other hand, have increased yet manageable needs. Young professionals have complicated and often unnecessary financial issues – better car, better clothes, better vacations. Yuppies, or people who are “upwardly mobile” and career climbers as they are referred to, have a higher propensity to buy because of the initial excitement of real-world adulthood.
Middle-aged people have even more complicated yet defined financial necessities – house payments, college, home repairs. The senior bracket or those nearing retirement have more defined financial requirements. Since most people nearing their retirement age have a unified idea of their needs, they are the ones who are usually targeted by bank and financial institutions to take out loans or reverse mortgages.
A person at the point of retirement age would most likely more concerned about available funds and savings more than anything else. And this is perfectly understandable because leaving the labor force entirely would mean ceasing to receive a paycheck on a regular basis. Some people, after assessing and calculating their bank assets and savings would feel that their money might not be enough to last them through their retirement period. That is precisely why mortgages and loans would be of interest and might benefit this demographic slice of the population.
A kind of mortgage that is designed specifically for the senior bracket is a reverse mortgage. It is only available for persons 62 years and older. The reverse mortgage is a loan that is placed on the home equity. It is referred to as reverse because it is not like normal mortgages when the homeowner receives a lump sum and repays the lender for the debt. In this kind of mortgage, the lender releases money to the homeowner for the life of the mortgage and the loan amount increase is directly proportional to the amount released.
The contract expires when the homeowner dies, sells the house or moves out. At this point, it would be safe to say that, in effect, the mortgage expires when the house is sold. Should the homeowner die or decide to move out, the allotment from the lender stops when the intent to sell the house is expressed, otherwise, the release of money to the borrower will be continuous. In case of death, the heirs will inherit the mortgage and the home, and they can decide to continue the allotment or settle the debt, that is if they intend to move out.
When the house is sold, part of the proceeds will be used to repay the home equity mortgage. If there is an excess, the homeowner can keep it, if the proceeds are not sufficient to settle the amount, the bank or the insurance provider of the bank with the loan will absorb the mortgage.
Before taking out a reverse mortgage, one should research thoroughly and weigh its advantages and disadvantages. This mortgage binds the home to the lender with no chance of reclaiming the property because as mentioned, selling the house is the only factor that would determine the conclusion of the mortgage.
In future articles I’ll take a look at the Dangers On Reverse Mortgages, Pros And Cons Of Reverse Mortgages and Tips To Consider Before Getting Reverse Mortgages
For Taking Early Retirement (TER), I hope you are enjoying a great retirement or are close to that day!
Jeremiah John
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