Reverse Mortgages for Seniors Explained
The reverse mortgage is gaining popularity to seniors because it provides a solution to those who cannot keep up with the traditional mortgage. Nowadays, reverse mortgages are easily the best salvation for seniors who have mounting retirement and health income that have combined with the interest rates and the stock market.Reverse mortgages allow seniors to live independently and comfortably right where they want to be. The loan can be any amount depending on the value of the property, the equity of the property and the interest rate. More so, there are no restrictions on using the loaned money. Borrowers can utilize the money to supplement retirement income for the required upgrades or repairs to their homes.
What is a Reverse Mortgage?
Reverse mortgage is a credit available to seniors and can be used to free the equity of the home as multiple payments or a single lump sum. The only obligation of the borrower is to repay the loan, which is deferred when the borrower dies, the owner leaves or the home is sold.
In the tradition mortgage, the homeowner is required to make monthly amortized payments to the lender. The equity will then increase after each payment and eventually after the end of the term, the mortgage has been paid in full and the property can be released from the lender.
However in reverse mortgage, the owner makes no payments and the interest is added to the lien on the property. In case the owner collects monthly payments, or a payment in bulk, the debt on the property raises each month.
In case the property has improved in value after the reverse mortgage is taken out, it is still possible to acquire a second reverse mortgage over the increased equity in the home. However in certain areas of the globe, the reverse mortgage must the foremost and the only mortgage on the property.
The Requirements for a Reverse Mortgage
In order to qualify for a reverse mortgage, you must be at least 62 years old. Fortunately, there are no minimum credit or income requirements for reverse mortgage though there are other requirements that the homeowner should reach before qualifying for the loan.
For most cases, the money obtained from the reverse mortgage can be used for any purpose. There are also other homes that do not qualify for the mortgage, like mobile homes, although they have their own special requirements.
Before borrowing, you must seek financial counseling from a source, which can be approved by the HUD. The counseling can help you and your family to be safe and ensure that you understand what a reverse mortgage really is and how it can be obtained.
The Pros of Reverse Mortgage
Reverse mortgage is an excellent alternative for seniors who own their own home and desire to extract equity from it in the form of cash. More so, there are no payments required on this kind of mortgage until the home is sold either by the home owner or the estate.
If the value of your home becomes less than what is owed, the HUD will make up the difference. This is an absolute advantage since there is no debt incurred to your heirs or descendants. In addition, the revenue you obtain from a reverse mortgage is considered as a loan and therefore not taxable.
The Cons of Reverse Mortgage
With all those advantages of reverse mortgage, there are certainly disadvantages. Knowing these two key elements can help you better decide whether reverse mortgage is right for you.
Firstly, once approved by the HUD, the federally insured mortgage can top out a little over $360,000. If you live in the San Francisco area, the amount is 50% or less of the median home price on the market. There are also cases where reverse mortgages do not allow seniors to access all their equity or even most of their money from the equity.
If you generate a relatively low income and depend on your SSI or Medicaid, you cannot get more in monthly reverse mortgage payments than you are going to spend. The money from a reverse mortgage placed in a bank account can help you be placed over the acceptable limit for liquid assets set by the assistance programs that you rely on.
