Reverse Mortgage: How it Works, Its Benefits and Drawbacks

Senior reverse mortgages are different from traditional home loans in several ways. Before you decide to get a reverse mortgage, it's a good idea to learn as much as you can about them; learn such things as how they work, their benefits and even their drawbacks.

With a reverse mortgage, you never have to make monthly repayments for as long as you live in your home. As a matter of fact, the opposite occurs: the lender pays you money. You can get money from a bank when you have a reverse mortgage in one of three different ways: a lump sum, a line of credit or monthly payments.

Because of this, the debt in your house gets larger as time goes on and you get more cash from the loan. At the same time, the equity in your home decreases.

When your senior reverse mortgage becomes due - either because you move out of the house or you pass away - the debt in your home many be very large, and the equity very small. If you have received a lot of money from the loan, there may be no equity left at the end of the mortgage. However, you can never owe more money than your home is worth.

Since you don't need to make any monthly repayments, you don't need any type of income to qualify. You could have no income and still qualify for a reverse mortgage. Also, your credit history is of no concern.

The main requirements when applying for a reverse mortgage are that you are at least 62 years old, and that there is enough equity in your home.

The amount of money you can borrow depends on three factors:

How old you are

The current market interest rate

The home appraised value or the FHA's reverse mortgage limit for your area

In general, the older you are, the bigger the appraised value of the home and the lower the interest rates, the more money you can borrow with a reverse mortgage.

You need to remember that since you keep ownership of your home, you are still required to pay your real estate taxes, insurance, maintenance costs, etc.

Senior Reverse Mortgage Benefits

A reverse mortgage has many benefits associated with it. These are some of its most important ones:

You won't need to leave your home. You can stay living in your home for as long as you want.

You don't need income to qualify. The lender is the one paying you.

You won't need to make any payments on a reverse home loan.

You can't ever loose your home because you don't make mortgage payments.

You can never be evicted your home for as long as you live in it. However, you still need to make real estate, insurance and maintenance payments.

You choose how you want to use the proceeds from a reverse mortgage

The funds are usually tax deductible

Most senior reverse mortgages have no income limitations

Your Social Security and Medicare payments are usually not affected (Depends on your individual situation.)

Senior Reverse Mortgage Drawbacks

As with any type of mortgage, a senior reverse mortgage has some drawbacks. Many of them are only potential and depend on your individual situation. Nevertheless, it's a good for you to know about these drawbacks before choosing to apply for a reverse mortgage.

These are some of the facts you need to consider before choosing a reverse mortgage:

Almost all reverse mortgages have variable interest rates. Your rates will change as the market changes.

Since reverse mortgages work by decreasing the equity in your home, you can use up most of the equity, leaving little money left for you and your heirs. However, a "non-recourse" clause found in most reverse home loans prevents either you or your heirs from owing more money than your home is sold forth.

Since you are still the owner of your home, you are still accountable for the real estate taxes, utilities, insurance and maintenance.

Most banks charge origination fees and closing costs. Most lenders also may charge servicing fees during the life of the mortgage. These fees are included in the loan.

The interest on a reverse mortgage is not deductible in your income tax returns until the loan is paid off (in part or whole.)

There is usually a cheaper solution to your problems (credit line, refinancing your existing mortgage, etc.)

To make sure you get a good deal, get a reverse mortgage using a trusted lender and a mortgage broker specializing in reverse mortgages. A good reverse mortgage broker will educate you throughout the process.

Article Source: http://www.articleselections.com

Before you get a Reverse Mortgage, make sure you learn all about them. You can read dozens of informative articles at Senior Reverse Mortgage.

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