Reverse Mortgage & Private Mortgage

REVERSE MORTGAGE

A reverse mortgage is also known as a lifetime mortgage in the United Kingdom. It is available to elderly people (in the United States to people above 62). It is used to release home equity in the property by lending one lump sum amount or multiple payments. The homeowner’s or borrower’s obligation to repay the Loan is defined till his death or the home is sold.

As in conventional mortgaging system, the home owner has to pay till the term is over and with every payment his equity in the property increases. The case is different in a reverse mortgage; the home owner makes no payments and the total interest is added to the lien on the property. If the owner gets monthly payments, or a bulk payment of the available equity percentage for their age, then the liability on the property increases each month.

If the value of the property has increased since the mortgage was taken out, it would be possible for the borrower to take out another reverse mortgage over the increased equity in the home. However in certain regions, a reverse mortgage must be the only mortgage on the property. It depends on the law of every country.

In the past decades, there has been a great increase in the demand of reverse mortgages worldwide. However the trend has great followers in the United States.

PRIVATE MORTGAGE

Nearly every mortgage originates from a bank or a financial institute. Yet at times there are certain private individuals, sellers or investors who wish to lend mortgage loans to people in need. A private mortgage could bring a number of advantages as well as disadvantages to the lenders and borrowers.

It is not necessary for a person to have a proper reputable channel to provide mortgages. Anyone and everyone, if they desire can provide private mortgages to people. Also, at times property owners decide to offer a private mortgage known as a ‘land contract’. Usually private lenders are in search of people who cannot or do not qualify for conventional bank loans.

Another reason why private property owners tend to give private mortgages is because their properties are not worth the price they expect or maybe it’s not on an appropriate location.

Therefore they cover their loss by giving it out on a private mortgage.

In a private mortgage, the ownership is not transferred to the borrower until the Loan is matured. Usually the financer or lender retains complete control over his property. For a seller, there is very little to no loss in this trade because if the buyer defaults he can simply ask him to withdraw from the contract. However there is great risk for the buyer and the major one is if after the term expires the seller does not obey the accord.

Moreover, at times private businessmen merely for investment offer private mortgages and earn profit through the interest charged.