Looking at media speculation regarding reverse mortgages, you will see both negative and positive insight. Reverse mortgages can be exceptionally useful for the right person, but for others, it may not be the best choice out there. This is why one needs to conduct proper research in terms of reverse mortgages as well as research on other options out there. One should also be very clear on the rewards and drawbacks of reverse mortgages.

Reverse Mortgage Pros

One of the main advantages of reverse mortgages is that you get to continue living in your home. You are also not required to make a monthly mortgage payment provided that you continue living in the home, do not sell the home, and do not become deceased. At the time of any of those three occurrences, a payment in full will be due including all interest charges and relevant fees.

• You have three different ways of receiving payment – a lump sum of cash, line of credit, of a monthly payment.
• The homeowner will never owe more than what the house is actually worth nor will the homeowner’s heirs after passing. This does not change no matter how high the internet rates rise, the amount of payments, etc.
• Reverse mortgages are easily approved since income and credit scores are not factors.
• The money that you, the homeowner, receive from the reverse mortgage is completely tax-free.

The money that is received can be used in any way that that you wish. Although, if a there is an existent mortgage on the home, then you will be required to pay that mortgage off in full once you receive the reverse mortgage loan.

Reverse Mortgage Cons

Simply put, reverse mortgages will be expensive. They have very high closing costs. These costs are normally at least double the rate that a traditional home mortgage would be.

By taking out a reverse mortgage, you are creating the possibility of not leaving the house to your heirs.

When taking out a reverse mortgage, you are entitled to abide by certain rules. You must keep all the terms of the mortgage up or the loan may become due in full at an early time. For example, you must maintain the up-keep and maintenance of the home as well as insurance on the home and property taxes paid up to date.

For seniors, a reverse mortgage (especially when taken as a lump sum and deposited into a bank account) could affect the eligibility of Medicare and other necessary programs.

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How Do Reverse Mortgages Work? Reverse Mortgage Explained

In today’s faltering economy, many people find themselves suddenly seeing their retirement income dashed, as they watch the financial security they spent years building evaporate. Enter reverse mortgages. After living on a tight budget, in order to pay off their home and enjoy a leisurely retirement, their savings may have been lost in one of the many financial debacles of the last decade, or they may simply realize that their estimated cash flow needs fall short of reality.

Fortunately, a relatively recent financial vehicle, the HECM or Home Equity Conversion Mortgage, can offer a means to salvage those plans, or to simply allow something better than a mere existence. Often known as a “Reverse Mortgage”, this is a way in which senior citizens, with substantial equity in their home, can receive payment from their lender, against that equity, for the entire time they live in that home.

Reverse Mortgage Explained

There are a number of reverse mortgage pros and cons so it’s important to understand them fully. Typically, a reverse mortgage is structured so that the homeowners receive monthly payments, until such time as they all either die, move out or sell the home. The payments received, plus accrued interest, will be paid from the proceeds of the sale of the home at that time. Depending upon the jurisdiction, points, mortgage insurance, closing costs and other fees may also accrue. These can usually be rolled into the loan, to avoid out of pocket expenses for the homeowner.

Eligibility for a reverse mortgage is quite simple. All owners listed on the deed must be at least 62 years of age and the remaining loan debt must either be zero or nearly so. No credit history or income is required to qualify. Payments continue until such time as the last surviving homeowner ceases to own or live in the home. The property must be sold at that time, which means it cannot be bequeathed to family members.

The reverse mortgage loan value, which determines the amount of the monthly payments, is set by the FHA (Federal Housing Authority), in accordance with the homeowners’ ages and the home’s value. Any necessary repairs must typically be made, to bring the condition of the home up to an acceptable level. Under some circumstances, the payment may be received in the form of a line of credit, or a lump sum. In some states, it is even possible to purchase a new home with the proceeds of the HECM.

Reverse mortgages are a perfect solution for some qualifying homeowners, but not for all. You can get more information from HUD (Dept. of Housing and Urban Development). It costs nothing to investigate, and it could be the best move you ever made.

© How Do Reverse Mortgages Work? Reverse Mortgage Explained

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