Finance

Reverse Mortgage – Pros and Cons 

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Reverse mortgage written on a memo stick.

A reverse mortgage is a form of loan that is meant for seniors aged 62 years or even more. These types of loans let homeowners transform the equity for their home into cash income without any mortgage payment every month. Most of these happen to be insured federally. Find out about the benefits and drawbacks of these loans. To help make your big reverse mortgage decision you need to get all the facts and details. Please read on.  

Pros of Reverse Mortgages

  1. The money that homeowners can get from a reverse mortgage is obtained from a loan taken against the equity of home. It is not regarded as taxable income, and has no impact on Medicare or Social Security benefits. You can get complete benefit of such types of funds, and there is no need to give anything to the government. 
  2. With these mortgages, homeowners are able to hold over their responsibility of paying back the loan until they die and have the home sold, or leave the house (move away). 
  3. These also let seniors benefit from the sum that they have earned as home equity, and live a better lifestyle. In a few cases, they can avoid the need to depend on other people for monetary help. They can use the money obtained from reverse mortgage in any way that they want, with no need to give up home ownership.
  4. It is also a fact that they do not have to qualify for any income requirements or credit. Reverse mortgages are approved and underwritten on the basis of factors like:
  • Age
  • Location of the house
  • Loan – value% of home equity

As there are no requirements for payment needed on the home, income figures and credit score are not used for disqualifying or qualifying anyone for the reverse mortgage.

Cons of Reverse Mortgages

  1. The costs of closure on reverse mortgages are usually slightly more than that of regular mortgages. Such costs include making upfront payment for the FHA insurance premium as well as other expenses related to obtaining the reverse mortgage. But other than the appraisal, such costs of closure are not charged from the pocket but happen to be reduced from the loan proceeds on closure. Generally, the fee for appraisal may be refunded at closure. 
  2. When money is borrowed against home equity, there is lien placed against the house. When the home is sold or its owner passes away, the lien has to be paid off. Thus, there less equity proceeds would go to the homeowner or his heirs upon the home sale, given that the reverse mortgage balance that is originally borrowed along with interest accrued has to be paid at that time. But if the balance is higher than the home value, there is no obligation to pay for the shortfall.
  3. Upon closure, a homeowner needs to stick to loan responsibilities. The main loan responsibilities include staying in the house as the main residence, paying for property expenses like homeowner association dues, hazard insurance, taxes, property maintenance in proper condition etc. If he fails to meet such responsibilities, the loan can be payable and due. 

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