reverse mortgage

Reverse Mortgage: Advantage and Disadvantages

Reverse mortgage is getting to be more and more common in most homes these days. Along with its popularity is the soaring of housing prices and the lowering of interest rates at their record lows. Let’s take a look at the reasons why despite the bad publicity that reverse mortgages had, they have managed to stay in the industry all these years to become the “in” thing for many borrowers today.

Nicknamed predatory loans, the reverse mortgage took more beating when it was embroiled in scandals. But in the last decade, it has earned more credibility after legislation required more upfront disclosures of costs.

This is a mortgage product designed for homeowners aged 62 and older. Through this product, seniors can receive a loan against their home in the form of a lump sum, regular monthly checks or a line of credit. The loan is typically repaid with interest when the borrower sells the house, permanently moves, or dies.

Here are some of the reasons that borrowers resort to a reverse mortgage.

To Pay Down Remaining Mortgages – Homeowners use a reverse mortgage to pay down their remaining debt on their traditional mortgages and use the remainder to fund other retirement costs.

Home Ownership – When the loan is accepted, the ownership of your house is not affected and you will still retain title to your home.

- The majority of the costs are paid for with the reverse mortgage loan.

Payment Period – Compared to a traditional home equity line of credit, a reverse mortgage allows debt payments, including interest and other costs, to be stalled until a later date, typically when the owner dies.

Prices – The debt can never go beyond the value of a home at the time that the loan is already repaid. This means that when soaring housing prices begin to drop, borrowers won’t be held responsible for paying back a higher amount.

However, there are also its negative aspects.

Variable Rate – A reverse mortgage tends to be a variable rate mortgage loan that entails substantial front-end expenses to compensate for expenditures if ever the borrower exits early.

Older Borrowers Means Higher Prices – The loan will be bigger for pricier homes and older borrowers.

Expensive – According to advocates and financial planners, a reverse mortgage can become expensive and complicated. Therefore, seniors who are interested in applying for a reverse mortgage should first learn how it works. Before they look for a lender, they should be ready to receive independent counseling.

High Rates – Borrowers who choose to take the lump sum are slapped with higher interest payments compared to those who settle for installment checks or a line of credit. The reason for this is that, with the two latter choices, interest is only computed on the portion used.

While financial planners recommend that seniors only take a reverse mortgage if they plan to stay longer in their homes, evaluating the product’s options may still be confusing. Before you apply for a reverse mortgage loan, make sure that you get impartial counseling first to help you decide if the product is right for you.

Know more about the advantages and disadvantages of reverse mortgage. Find an online home loan equity mortgage calculator.

reverse mortgage

How To Apply For A Reverse Mortgage

What Is A Reverse Mortgage? A reverse mortgage or other known as lifetime mortgage is a loan available to seniors, and is used to release the home equity in the property as one lump sum or multiple payments.

The homeowner’s obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves.

What are the Requirements of Reverse Mortgage? To qualify for a reverse mortgage in the United States, the borrower must be at least 62 years of age.

For most reverse mortgages, the money can be used for any purpose; however, the borrower must pay off any existing mortgage(s) with the proceeds from the reverse mortgage and, if needed, additional personal funds.

These sessions are free of charge and given by a non-profit organization. This allows another opportunity to ask all the necessary and proper questions. During the loan and the remainder of its life, you cannot be asked to leave the property, as you still are the owner and deed holder.

The estate will be settled in the normal way, the property will be passed on to the heirs, and they can refinance out of the reverse mortgage. If they decide not to reside in the property, they can sell the unit, pay off the reverse mortgage, and keep the balance of the monies of the estate. They have one year, from the passing of the note holders, to settle the mortgage.

If the mortgagor fails to pay any of the installments or the interest, the whole remaining unpaid amount shall immediately due and payable at the option of the mortgagee or the lender.

The size of your loan will depend on your age, the kind of loan you want, the value of your home, and the current market interest rates.

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