equity mortgage

Understand How A Equity Mortgage

When the borrower obtains a better interest rate on the mortgage of his house, in lieu of sharing the profits with the lender as and when he sells his property is termed as equity mortgage. Equity mortgage is a win – win situation for the lender and the borrower.

There are two types of equity mortgages:-

Shared equity mortgage – Here the lender obtains a part of the equity of the property on providing a loan to the borrower based on the mortgage value of that particular property. Therefore the lender is entitled to the profits that are obtained on selling the house.

Reverse equity mortgage – It is recommended for people who have a large share of equity in their property but are short in cash. Reverse equity is not available to everyone. There are certain prerequisites. Individuals need to be above 62 years of age to avail reverse equity. The major contributing factor that goes into deciding whether you receive the reverse mortgage loan is the percentage of equity that is owned by you in your property.

Higher the percentage higher the amount that is loaned. The loan amount that is obtained need not be paid back until you move out of the house. If you move out you can sell off your house, obtain the amount pertaining to your equity and pay off the reverse equity loan. In the case of death of the home owner, the house is sold off and the proceeds over and above the repayment of the loan are given to the kin of the house owner.

When you obtain a reverse mortgage loan you are selling off your home, instead you are obtaining a loan using the equity as security. The loan amount can be spent as you see fit with no restrictions whatsoever.

Equity Mortgage