Comparative analysis of Reverse Mortgage and Others

Jessica · Last edited by Jessica on Fri Feb 10, 2006 10:32 pm

Reverse and forward mortgages may have some common features in the sense that both help you remain the owner of the home and both require payment of the entire loan with interest. But they differ to a large extent with respect to their purposes as well as the mode of repayment.

A forward mortgage helps to build up equity, as there are monthly payments towards the repayment of the mortgage, which helps to reduce the loan balance. But with a reverse mortgage, there is hardly any payment on a monthly basis. Here the entire loan amount along with interest is paid back when the property is kept for sale, when the last surviving owner dies, or when he abandons the entire property.

Here is a list of differences to help you with the pros and cons of forward and reverse mortgages.

	Forward Mortgage	Reverse Mortgage
Purpose of loan	To purchase property	To generate cash.
Prior to closing, borrower has	No equity in the property	A lot of equity in the property.
At closing, borrower	Owes more and has less equity.	Owes less and has sufficient equity.
During the loan period, borrower	Pays monthly installments to the lender. Loan balance reduces. Equity increases.	Receives monthly payments from the lender. Loan balance increases. Equity gets reduced.
At the end of the loan period, borrower	Owes nothing Has sufficient equity.	Owes a large amount. Has much less equity.
Type of transaction	Falling debt, rising equity.	Rising Debt, falling equity.

Related Articles:

Reverse Mortgage

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In a forward mortgage the debt is used to turn your income into equity whereas in a reverse mortgage the debt is used is used to turn the existing equity into income.

Thanks,
Rhonda

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I was told there was a cap on how much money I could receive on a reverse mortgage....That the cap on value of a home is $297,400 even if my home has been appraised for a higher value. Is this true?

Samantha · Posted: Thu Apr 27, 2006 10:04 am Post subject:

Hi Boobie,

Welcome to MortgageFit Forums.

This is true that there are limitations on the value of your home that can be accessed through a reverse mortgage program. This depends on the location of your house.

In Chicago, the cap on equity that you can withdraw via FHA-insured reverse mortgage is $237,500. Fannie Mae has a different Home-Keeper reverse mortgage where the cap is slightly higher.

Check with some other brokers/lenders in your area to verify the cap value in your area given for your house.

Feel free to ask if you have any more queries.

God bless you.

For MortgageFit,
Samantha

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regarding the reverse mortgage i want to know that should we first buy a flat and r you going to give the rent instead.

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Hi Jyoti,

Which rent are you talking about? The mortagge community does not provide any rent facility. If you can properly specify your question, i'll be able to answer you.

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