What is a reverse mortgage loan?
Reverse mortgage is a new phenomenon, AEMLR (an agency engaged in mortgage loan restructuring) is distributed among retirees and implies a pledge of real estate with subsequent sale. The emergence of such a credit product is due to the low standard of living of pensioners.
For elderly citizens who do not have financial support from relatives, this option of mortgage lending can be a good help.
Reverse mortgage is designed for senior citizens, when a life loan is issued on the security of residential real estate. It is very important that with such crediting the rights of property of citizens on their housing remain.
After the death of an elderly person, the lender offers real estate for sale. Realization of the property compensates the debt to the financial institution with interest accrued on it, and the balance is returned to relatives.
If relatives wish to inherit, the bank will not sell real estate.
In this case, the heirs will have to pay the lender the entire debt, together with the accrued interest, and only after that they will be able to formalize the ownership of the housing of the deceased relative. This option is convenient for the bank - you do not have to engage in the sale of an apartment.
Features of the conclusion of the reverse mortgage
• The age of a candidate for a loan should be as close as possible to 65 years. If the property is owned by more than one person, then the pensioner who is younger is taken into account.
• The potential borrower should not have incapable heirs and dependents on the maintenance, because the law will not allow real estate to be sold to the bank.
• A loan can only be issued for an apartment located in a large settlement, since it is possible to make a forecast regarding the sale of this property more realistically.
• The apartment should not be seized. It should not be in disrepair. Be sure to have water and electricity.
Is reverse mortgage different from rent?
In case of reverse mortgage lending, the bank is interested in the longest possible life of its client. Why? Because in this case, the credit institution receives the highest profit - the longer the elderly borrower uses the credit funds, the greater the amount of interest will be charged on the loan body.
In case of a reverse mortgage, the pensioner has the right to terminate the loan agreement at any time by repaying the loan.
What problems may arise?
To date, this program is not endowed with a clear sequence, it is not always possible to legally prove the correctness of a lender or borrower.
With this type of lending, a problem for a bank can be relatives who wish to solve their financial problems with low interest rates.
It is not excluded the eviction of the debtor. Although the loan is a lifelong loan, if a client has a huge debt in front of housing and public utilities, a credit institution may terminate the loan agreement and demand early repayment of the loan. If the borrower is unable to do this, then the property is put up for auction.
Another major drawback. When making a reverse mortgage, you need to make an assessment of housing, pay for insurance and various commissions. All this is done at the expense of the potential borrower, which leads to an increase in interest.