Considerations For Reverse Mortgages

So, what is a reverse mortgage? Well, basically a reverse mortgage is a loan that permits a homeowner 62 years or of age or older to borrow against the equity they have built up in their house without ever having to actually dispose of the asset. A retiree’s home can be a great source of valuable income. However, it's important to do your homework. In this article we will explain some of the key characteristics of a reverse mortgage.

First, let’s explore the way a reverse mortgage works. As I mentioned above, it essentially allows a senior to access the equity in their home without having to dispose of the asset. Using a reverse mortgage will not increase monthly repayment amounts like other loans that allow equity release. The reverse mortgage loan is tax-free, and only needs to be paid upon the borrower’s death or disposition of the property.

As some point though, the balance of the loan and any charges added to it must be paid off. There are also costs to keep in mind with reverse mortgages. Keep in mind that the amount of fees charged to the borrower can vary greatly depending on the lending institution. Therefore, these loans should be aggressively shopped and compared. The applicable costs include closing costs, appraisal fees, insurance, credit report fees, as well as a myriad of ongoing monthly charges.

Second, seniors on a limited budget must recognize that they will continue to be responsible for property taxes, repairs, insurance and other related costs, since they will continue to live in the home. A final consideration when evaluating whether a reverse mortgage is the right option is to remember to factor in how a reverse mortgage may affect eligibility for social security benefits. It is likely that the cash received from the reverse mortgage will not affect any entitlement to social security benefits.

Third, remember that a large part of the approval process in securing a reverse mortgage deals with the condition of the home itself. The property will need to be sound and kept up to a good standard. The total amount a home owner is able to access depends on the type of reverse mortgage loan, the interest rate, the age of the borrower, and how much equity they have currently in the home. As you get older, you should be able to draw down a larger amount of equity.

The borrower can elect to receive payments either as an ongoing fixed monthly payment, a lump sum payment, or some sort of line of credit. You can also use several different methods of drawing down the funds. Lines of credit are the most popular method. This allows the homeowner to be able to draw on the loan, whatever their cash flow needs dictate it.

That is a good overview of reverse mortgage. Hopefully this information has been helpful but if you need more information you should contact a qualified, independent mortgage broker.

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