Essentially a reverse mortgage is a loan that permits homeowners 62 years of age and older to borrow against the equity in their homes without having to sell it. Further, you don't have to give up the title or take on a new monthly mortgage payment.
A reverse mortgage loan is tax-free and needs only to be repaid when the borrower (or in the case of Betty and John, when the surviving spouse) dies or sells the home. At which time, the reverse mortgage loan must be repaid in full, including all interest and other charges.
When examining the advantages and disadvantages of a reverse mortgage it's also important to consider both the process and the related costs of obtaining a reverse mortgage. Unlike a conventional mortgage, with a reverse mortgage, the homeowner (the potential borrower) must meet with a reverse mortgage counselor. References for counselors can be obtained from banks offering reverse mortgages or the U.S. Department of Housing and Urban Development (HUD).
The purpose of these meetings which may take place in person or on the telephone is for the homeowner to learn about reverse mortgages and discuss alternative options. It also helps you decide which kind of reverse mortgage may be best. As well as exploring the advantages and disadvantages of a reverse mortgage, it's wise that the potential borrower, also compare costs between various lenders and request a Total Annual Loan Cost estimate for each.
Further to discussing the advantages and disadvantages of a reverse mortgage with a counselor, you also need to understand that there are certain costs involved in the reverse mortgage process. Costs may include application fees, closing costs, insurance, appraisal fees, credit report fees, and quite possibly a monthly service fee. Remember too that since a reverse mortgage allows you to continue living in your home, you're still responsible for property taxes, insurance and repairs. If these payments are not maintained, the loan could become due in full.
A reverse mortgage may also affect eligibility for federal or state assistance as well as Medicaid. That said, any reverse mortgage money that is received is tax-free and does not affect Social Security or Medicare benefits.
The condition of your home is also a large part of the approval process. It must be structurally sound and in good repair. If it's determined that home repairs need to be done, the costs can also be financed through the reverse mortgage loan.
The total amount a homeowner can borrow all depends on the kind of reverse mortgage selected, how much equity is in the home, the loans interest rate and most importantly, the age of the borrower. Typically the older a person is, the more they can expect to receive.
A borrower can receive reverse mortgage payments in one of the following ways: in a lump-sum payment; fixed monthly payments; a line of credit or a combination of any of the above. Most homeowners go for the line of credit option which allows them to draw on the loan whenever money is required.
Article written by: Paul Jesse
About Paul Jesse:
Paul Jesse is a retired government employee, small business owner and the author of many articles on finance and internet marketing. Visit his website at: www.sheamarketing.com
To apply for Reverse Mortgage one must fulfill certain conditions. One needs to fill in an application form with information like age of the borrower, interest rate, and loan fees etc. People can apply for the same not only by visiting the banks, one can also log on to online sites and apply for the same.
This type of Mortgage is lucrative and will not affect the borrower''s ability to collect social security and pension benefits. People can take Reverse Mortgage loans to pay for home repairs, taxes, insurance payments, medical bills etc. this Mortgage is of different types.
Before applying one needs to do a lot of home work i.e. research work, that can include talking to a financial experts, going through bank literatures etc. One needs to be careful and clear about the terms and conditions involved in Reverse Mortgage as any kind of carelessness can lead to problem.
Reverse Mortgage loan enables the people to take loan from lenders in lump sum without much difficulty. The good thing about this mortgage is that the borrower still remains the owner of the house just like he was when he had a forward mortgage. Before making any decisions one should always do proper research work about the bank, the loan types, rate of Interest
Before making any decision about Reverse Mortgage it is very important on the part of the borrower to be well aware of his ability to pay back the amount he has borrowed. People can apply for the same for education, home, car and other purposes. Loan is something which people have to payback that too within fixed period of time.
People should always apply for the Reverse Mortgage loans from good and safe banks! Thus one should always browse around to find the best place. One can find out about such financial programs not only by visiting various banks, but also by taking the help of Internet. Apart from one can also take the help of Mortgage lenders or even the Brokers as they can provide details about such financial programs!
People with bad financial history may not be eligible for getting Reverse Mortgage loan however good places can be an exception. After choosing the right bank and the loan one needs fill in the registration form offered by the banks. People need to show documents and papers, and fulfill certain criteria to borrow the money. One could payback the amount either together or in installments. Good places do not want your home but need the repayment!
Special rules apply to reverse mortgages, and the paperwork involved can make them a little bit intimidating. But according to reverse mortgage professionals, this kind of loan has much to recommend it.
For instance, all income from a reverse mortgage is tax-free. The money can be taken out one of three ways: as a line of credit, a lump sum, or in monthly payments. And the homeowner never loses title to the home.
The loan doesn’t have to be paid back until the homeowner dies, sells the home, or permanently moves out. Even then, the bank doesn’t just “take” the house. The homeowner or the heirs must pay back the loan, typically from proceeds from the sale of the home.
According to the National Reverse Lenders Association, no monthly payments are due on a reverse mortgage while it is outstanding. Not only that, the amount owed can never exceed the value of your home, so fluctuations in appraised value do not affect the loan.
The amount of money that can be loaned depends on a variety of factors, among them the age of the homeowner or homeowners, and appraised value of the home, as well as what type of reverse mortgage is employed: FHA, Fannie Mae or proprietary.
Some homeowners worry that their Social Security or Medicare benefits could be decreased should they obtain a reverse mortgage. However, reverse mortgage income is non-taxable and does not affect Social Security or Medicare. However, Medicaid or SSI benefits could be affected in some cases. Your reverse mortgage specialist may be able to advise you on this point.
Counseling is an important part of the process. The reverse mortgage cannot go forward until the homeowner has talked with a Housing and Urban Development (HUD)-certified counselor, either in person or by phone. The counselor simply confirms that the homeowner understands how the reverse mortgage works and ensures that the homeowner knows about alternatives to reverse mortgages.
This can be obtained from a local HUD-approved counseling agency, or a national counseling agency, such as AARP (800-209-8085), National Foundation for Credit Counseling (866-698-6322), and Money Management International (877-908-2227).
A reverse mortgage may not be for everyone. The loan can take a month or more to process. Homeowners who intend to move within two to three years may want to consider less expensive options, such as home equity loans. Those who want to leave their home to their children may also not want to have a reverse mortgage, because in many cases, the home is sold to pay back the loan.
That being said, reverse mortgages can be a perfect way to make retirement a little more carefree — just think of it as a retirement account that happens to be buried in your own back yard.
Article Written By: Kathryn Nichols
With a reverse mortgage, you the homeowner have options as to how you want the loan dispersed to you. First, you can obtain a lump sum payment. Roughly estimated, a home worth $200,000 may result in a lump sum payment of $129,000 (AARP Website). Lump sum payments depend upon a number of factors which include the age of the borrowers, zip code, and whether the home is in need of any repairs.
If you opt to receive a lump sum payment, any mortgage balance that you have will need to be paid from the payment you receive. The interest rate is the highest for this type of reverse mortgage.
Second, you can obtain an easily accessible line of credit as your reverse mortgage option. If you still owe money on your house, you must qualify for a cash payment to pay off the loan. The rest of the money will then be available to you as a line of credit that you can use at your convenience.
Third, you can choose to receive regular monthly payments from the reverse mortgage lender. For the same home above worth $200,000, a rough estimate of monthly payments is $800. Again, monthly payments are calculated based on the age of the borrowers, the location of the home, and the current assessed value of the property.
Lastly, you can obtain a reverse mortgage that is a combination of all three. You can obtain a small cash sum up front to pay off an existing mortgage, keep some money in a line of credit and receive smaller monthly payments.
Qualifying for a reverse mortgage requires that the borrower is at least 62 years old. There are no credit or income requirements. Some properties (such as mobile homes) are not eligible for a reverse mortgage. All borrowers must meet with an approved Department of Housing and Urban Development financial adviser to ensure that all aspects of the reverse mortgage are understood by the borrower.
A reverse mortgage loan is not paid back by the borrower until they die, move out of the home, or sell the property. The loan is paid back from the proceeds of selling the house. If there is money remaining either the borrower or their heirs keep the balance. If the proceeds from the sale of the home are not sufficient to cover the cost of the loan, the lender absorbs the loss.
Weighing all of your retirement options and deciding what is best for you and for family is a challenging task. Reverse mortgages are a way for you to enjoy the equity you built up in your home over the years and can ensure that you remain in your home for as long as you are physically able.