Advantages And Disadvantages Of A Reverse Mortgage

Betty and John, are in their mid-seventies and are currently
weighing the advantages and disadvantages of a reverse mortgage
as a way of freeing up some cash
The couple purchased their home 45 years ago for about $14,000
since then home values have skyrocketed and recent single family
homes in their neighborhood have been selling for a minimum of
$160,000 Like Betty and John, if you’re considering a reverse
mortgage it’s important to do some research prior to making a
decision You not only need to understand the basic principles
of this kind of mortgage but you also need to look at all the
advantages and disadvantages of a reverse mortgage
Essentially a reverse mortgage is a loan that permits homeowners
62 years of age and older to borrow against the equity in their
homes without having to sell it Further, you don’t have to give
up the title or take on a new monthly mortgage payment
A reverse mortgage loan is tax-free and needs only to be repaid
when the borrower (or in the case of Betty and John, when the
surviving spouse) dies or sells the home At which time, the
reverse mortgage loan must be repaid in full, including all
interest and other charges
When examining the advantages and disadvantages of a reverse
mortgage it’s also important to consider both the process and
the related costs of obtaining a reverse mortgage
Unlike a conventional mortgage, with a reverse mortgage, the
homeowner (the potential borrower) must meet with a reverse
mortgage counselor References for counselors can be obtained
from banks offering reverse mortgages or the US Department of
Housing and Urban Development (HUD)
The purpose of these meetings which may take place in person or
on the telephone is for the homeowner to learn about reverse
mortgages and discuss alternative options It also helps you
decide which kind of reverse mortgage may be best
As well as exploring the advantages and disadvantages of a
reverse mortgage, it’s wise that the potential borrower, also
compare costs between various lenders and request a Total Annual
Loan Cost estimate for each
Further to discussing the advantages and disadvantages of a
reverse mortgage with a counselor, you also need to understand
that there are certain costs involved in the reverse mortgage
process Costs may include application fees, closing costs,
insurance, appraisal fees, credit report fees, and quite
possibly a monthly service fee
Remember too that since a reverse mortgage allows you to
continue living in your home, you’re still responsible for
property taxes, insurance and repairs If these payments are not
maintained, the loan could become due in full
A reverse mortgage may also affect eligibility for federal or
state assistance as well as Medicaid That said, any reverse
mortgage money that is received is tax-free and does not affect
Social Security or Medicare benefits
The condition of your home is also a large part of the approval
process It must be structurally sound and in good repair If
it’s determined that home repairs need to be done, the costs can
also be financed through the reverse mortgage loan
The total amount a homeowner can borrow all depends on the kind
of reverse mortgage selected, how much equity is in the home,
the loan’s interest rate and most importantly, the age of the
borrower Typically the older a person is, the more they can
expect to receive
A borrower can receive reverse mortgage payments in one of the
following ways: in a lump-sum payment; fixed monthly payments; a
line of credit or a combination of any of the above Most
homeowners go for the line of credit option which allows them to
draw on the loan whenever money is required

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