What is Reverse Mortgage and is it a Good Choice
Posted on November 2, 2009
Filed Under Unemployment Will Cause The Most Foreclosures In 2009! |
Over the years, we have seen the U.S. Department of Housing and Urban Development create a variety of mortgages to meet the many demands of homebuyers. However, one question that is being asked more and more is what is reverse mortgage and is it a good choice.
A reverse mortgage is actually backed by the federal government even though it is officially a private loan. With this, the homeowner’s equity is used for a variety of things. Keep in mind that when answering the question of what is a reverse mortgage and is it a good choice, some restrictions apply. For instance, this type of mortgage is one available to the elderly with the funds being used at the discretion of the homeowner.
One of the aspects of a reverse mortgage is that the homeowner does not have to have his or her income checked. Even so, to determine how much money can be taken out, the interest rate on the loan, and even the monthly payment, a number of things are looked at by the lender. As a starter, the borrower has to be at minimum, 62 years of age. Then, the homeowner must live full-time in the home, have adequate equity, and complete a special counseling session provided by HUD.
Other important information that goes along with the question “what is reverse mortgage” is that the homeowner can choose the way in which the funds are distributed. For instance, money can come to the homeowner as a monthly payment, a lump sum, a specified line of credit, or any combination of the three. The most critical piece of information is that the mortgage on the home is not paid until after the homeowner passes away, moves, or sells the residence.
Now, to determine the answer to the question what is a reverse mortgage and is it a good choice, it is vital to look at the positive and negative aspects. While many people love the concept of a reverse mortgage, others are a little more skeptical. Therefore, gaining all the knowledge possible will help in the decision-making process.
Advantages
One of the primary benefits linked to a reverse mortgage is that the homeowner is allowed to use the home’s equity for numerous things. For example, the money could be used to travel, make updates on the home, and pay off medical bills, or send a grandchild to college, and so on. However, in trying to manage bills during later years, many homeowners use reverse mortgage funds to supplement a retirement account, savings, or Social Security income.
However, one of the huge benefits of a reverse mortgage is that for many elderly living on a limited income from savings, pension, or Social Security, these funds can help supplement, making day to day living more manageable. Then, with the money being non-taxable and with no income restrictions, it is definitely a consideration for a lot of people.
Until the time comes when the homeowner moves, sells the property, or passes away, not having to have pay the money back is a huge blessing. Now, if there were family members in the homeowner’s will, once the homeowner passes away, the reverse mortgage could be refinanced. The key here is that with several variations for this type of mortgage, anyone interested needs to consider all options before signing on the dotted line
Finally, if the homeowner were to pass away, any heirs would have the legal option to refinance the loan to that of a more traditional loan. However, there are variances of the reverse mortgage so is inheritance issues are important to the homeowner, these options need to be reviewed and analyzed carefully.
Negative Aspects
Unlike more traditional mortgages, a reverse mortgage is generally expensive to secure. Some of the reverse mortgage rates include application fees, insurance, closing costs, appraisal, and in some cases, a monthly fee for the loan being managed by the lender. This in addition to the continuance of other home fees such as insurance, tax, repairs, homeowner association dues, and so on would need to be considered too.
The final aspect that goes with the question of what is a reverse mortgage and is it a good choice has to do with the condition of the home, which could make or break the deal. Lenders want to see sound construction and the home in good repair. The positive side of this is that if repairs are needed to complete the reverse mortgage process, then any costs could simply be rolled into the mortgage.
The question of what is a reverse mortgage and is it a good choice is very important. With a ton of information to decipher, doing your homework doing reverse mortgage quote comparisons and talking to a professional from HUD will help guide you in the right direction.
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