Reverse Mortgages

How do Reverse Mortgages Work?

mas1879 — Sun, 29 Jun 2008 22:24:24 +0000

Reverse mortgages are growing in popularity as retirees are seeking ways of subsidizing their retirement income. While information is becoming more readily available on reverse mortgages, many people are still asking, “How do reverse mortgages work?” Here is a brief overview of what to expect when you are considering a reverse mortgage.

These mortgages can only be gotten by individuals aged 62 or older. These people are normally in a position where they are “cash poor and property rich.” Reverse mortgages are a financial vehicle designed to provide extra income to seniors who have built up a lot of equity in their home. This type of financing allows them to tap into the equity in their home while still retaining ownership of their home.

Basically, reverse mortgages are a way to take the equity out of the home without having to repay it until the homeowner sells the home or dies. The homeowner retains ownership and lives in the home the entire time. Additionally, a reverse mortgage is tax-exempt during the loan period and will not interfere with Social Security benefits. This is a mortgage in reverse, where the lender pays you instead of you paying the lender.

The proceeds of a reverse mortgage can be used for any purpose, since you are taking money out of your home that you previously paid in. There is no repayment due until you no longer live in the home.

Reverse mortgages can be paid out in one of three ways; a lump-sum payment, monthly payments or a home equity line of credit or any combination of the three. The greatest value of being able to have extra monthly income or cash is financial security. You can have an emergency account for unexpected expenses or have extra savings for the cost of daily living. There is also no worry of having to pay the money back.

Many people have concerns that they will not have enough to live on once they retire, but a reverse mortgage can help relieve some of these concerns. This is just a brief overview of how a reverse mortgage works. Companies that offer this type of financing have independent credit counselors that can better answer the question, “How do reverse mortgages work.” This counseling is a required part of getting a reverse mortgage and can answer all your questions in great detail. Reverse mortgages can be a viable way for seniors to get the necessary money they need to meet their financial needs.

How Do Reverse Mortgages Work?

mas1879 — Sun, 29 Jun 2008 22:17:20 +0000

Disadvantages of Reverse Mortgages

mas1879 — Thu, 12 Jun 2008 02:35:27 +0000

Although there are several advantages to reverse mortgages, there are also disadvantages to reverse mortgages. You have to look at both sides and decide if the advantages outweigh the disadvantages before deciding if a reverse mortgage is for you.

One of the biggest disadvantages of this type of mortgage is the cost factor. Compared to traditional loans the upfront fees can be quite steep, probably in excess of $10,000. Also, interest begins accruing at the time the first payment is made to the borrower.

Another problem with reverse mortgages is the complexity of the fees associated with this type of mortgage. Some of the fees that may be a part of the reverse mortgage include mortgage insurance premium amount, origination fee, loan closing fee, service charge, shared appreciation fee and shared equity. This is the part of the reason credit counseling is a requirement before allowing an individual to obtain a reverse mortgage. These fees will require careful consideration as to whether it makes this type of financing in your best interest.

You must also be aware of how a reverse mortgage can affect qualification for pensions, health care, or Social Security income. Having a reverse mortgage will most likely not affect Social Security and Medicare, but it will affect some government programs. Your credit counselor can best inform you of what will be affected.

Reverse mortgages will take away from any inheritance you were expecting to leave your heirs. If you were expecting to leave the house to someone the loan will have to be paid off first.

The loan amount is repaid at the time of the sale of the home. If the home is sold for an amount less than what is owed on the loan, the mortgage insurance pays the difference. If the home is sold for an amount more than the loan, the excess goes to the homeowner or its heirs.

If you are planning on leaving your home to your heirs, a reverse mortgage is not going to be an option you will want to use. A reverse mortgage takes from the equity in your home, leaving it with less of a value.

While reverse mortgages have helped many people, you will want to give this type of financing careful consideration. There are disadvantages to reverse mortgages and it is up to the borrower to evaluate whether a reverse mortgage will best meet his or her financing needs. The reverse mortgage credit counselors will do a good job of laying out the pros and cons of this type of income plan.