Reverse Mortgages
A reverse mortgage is a new type of mortgage loan that works just the opposite of your typical mortgage loan. Instead of you paying the mortgage company, the loan company pays you. This is a new concept to consider if you are at least 62 years old and own your home. If you are needing money for medical bills, home improvements, or other reasons. This type of mortgage can give you the cash you need without you having to make monthly payments to pay them back. If you plan on living in the home for the duration of the loan, you do not have to make payments or you will not be forced to move. You are paid in cash the equity value of your home to do with as you see fit and you don't have to worry about making more monthly payments that you really cannot afford.
With the reverse mortgage, you will not lose your home because you didn't make a monthly payment on it. However you or the co-signer must continue to live in it. You will be paid the equity value instead of you paying the mortgage company. You have a choice on how you wish to be paid your reverse mortgage loan. You can be paid cash all in a lump sum , you can be paid on a monthly basis receiving a payment each month, you can be paid through an account where you decide when and how much you will be paid in any given time, or you can choose a combination of any or all of the mentioned options. You have the control over your equity cash and how much you will receive and how you will spend it.
There are several advantages of the reverse mortgage and they are: You do not need to make monthly payments (instead, you receive them) and you do not have to have an income to apply for a reverse mortgage. They are also tax free and should not affect your Social Security or Medicare benefits. Who can't use a tax break?
There are three types of reverse mortgages but you may or may not qualify for all of them. They are single-purpose, HECMs, and proprietary mortgages.
The amount you will owe on a reverse mortgage will increase over time and there will be interest charged on the balance of the loan. There will also very likely be charges such as closing costs before you receive the loan and possibly fees during the term of the loan. Your debt will increase and your home equity will decrease.
The loan is required to be paid back after the last borrower dies, sells the home, or doesn't live there anymore. You are required to continue to pay property taxes and property insurance as well as maintenance on the property and other expenses as you did before the loan was made. Since the equity decreases as time goes along there may not be much if any left when the mortgage becomes due. There is a non-recourse clause which keeps you or your co-owner from owing more than the home is worth.
There is a chance that the property will increase in value too and if so the equity would increase instead of decrease. In most cases however the equity will decrease. This cannot be predicted either way. Most reverse mortgages have variable interest rates however some may have fixed rates.
It would be wise to do some research and find out all you can about the reverse mortgage before you make the final decision to apply for one. There are many factors to consider before you decide if the reverse mortgage is something that fits your needs. If there is anything you do not understand, do not be afraid to ask an authority on the subject before you take the leap, not after you have signed on the dotted line.
The reverse mortgage can be the answer to many peoples problems or needs, but it can also be a nightmare if not researched in full capacity and you know and understand everything involved and are aware of all of the pros and cons. If you are not sure, have a friend or family member to help you so there are no misunderstandings and problems farther down the road.
