Seniors Reverse Mortgage – 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 you are getting money from the bank, you increase your home’s debt as time goes on. At the same time, the equity in the home decreases.
Whenever the time comes to pay back your reverse mortgage – you move out of the home or you die -, the debt may be large and you may have little equity left in the house. However, no matter how much money you owe, it can never be more than the value of the home.
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 only requirements are that you are at least 62 years old, and that there is enough equity in the home.
The amount of money you can borrow depends on three factors:
– Your age
– The current market interest rate
– Your home estimated value or the FHA’s mortgage limit for the area where you live
As a general rule, the older you are, the more expensive your home is and the lower the interest rates are, the more money you can borrow with a seniors reverse mortgage.
Also, remember that since you will still be the owner of the home, you are still required to pay real estate taxes, insurance, and maintenance costs.
Senior Reverse Mortgage Benefits
A reverse mortgage has many benefits associated with it. These are some of its most important ones:
– You don’t need to leave your home. You can stay in your home for as long as you want.
– You won’t need any income to qualify. The lender is the making the payments.
– You won’t need to make any payments on a reverse home loan.
– You can’t loose your house because you can’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 can use the money from the reverse mortgage for any thing you want.
– The funds from a reverse mortgage are usually tax deductible
– Most senior reverse mortgages have no income limitations
– Your Social Security and Medicare payments are for most people not affected
Reverse Mortgage Cons
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:
– Most all reverse mortgages have variable interest rates. Your rates will vary as the market changes.
– Since reverse mortgages work by decreasing your home equity, you can use up most of your home equity, leaving little money left from the sale of the house 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 worth.
– Since you keep ownership of the home, you are still responsible for real estate taxes, insurance and maintenance costs.
– Most lenders charge origination fees and other closing costs for a reverse mortgage. Lenders also may charge servicing fees during the duration of the home mortgage. These fees are already included in the mortgage.
– The interest paid on a reverse mortgage is not deductible in your income tax returns until the home mortgage 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.