Reverse Mortgage
It is a natural occurrence in the life cycle of an individual to change priorities according to their age. In the case of financial needs, for instance, young children have trivial monetary concerns. Teenagers, on the other hand, have increased yet manageable needs. Young professionals have complicated and often unnecessary financial issues. Yuppies, as they are referred to in urban slang, have a higher propensity to buy because of the initial excitement of real-world adulthood.
Middle-aged people have even more complicated yet defined financial necessities. The senior bracket or those nearing retirement have defined financial requirements. Since most people in their retirement age have a unified idea of their needs, they are the ones who are usually targeted by bank and financial institutions to take out loans or reverse mortgages.
A person at the point of retirement age would most likely more concerned about funds and savings more than anything else. And this is perfectly understandable because leaving the labor force entirely would mean ceasing to receive a paycheck on a regular basis. Some people, after assessing and calculating their bank assets and savings would feel that their money might not be enough to last them through their retirement period. That is precisely why mortgages and loans benefit from this demographic.
A kind of mortgage that is designed specifically for the senior bracket is a reverse mortgage. It is only available for persons 62 years and older. The reverse mortgage is a loan that is placed on the home equity. It is referred to as ‘reverse’ because it is not like normal mortgages when the homeowner receives a lump sum and repays the lender for the debt. In this kind of mortgage, the lender releases money to the homeowner for the life of the mortgage and the loan amount increase is directly proportional to the amount released.
The contract expires when the homeowner dies, sells the house or moves out. At this point, it would be safe to say that, in effect, the mortgage expires when the house is sold. Should the homeowner die or decide to move out, the allotment from the lender stops when the intent to sell the house is expressed, otherwise, the release of money to the borrower will be continuous. In case of death, the heirs will inherit the mortgage and the home, and they can decide to continue the allotment or settle the debt, that is if they intend to move out.
When the house is sold, part of the proceeds will be used to repay the home equity mortgage. If there is an excess, the homeowner can keep it, if the proceeds are not sufficient to settle the amount, the bank or the insurance provider of the bank with the loan will absorb the mortgage.
Before taking out a reverse mortgage, one should research thoroughly and weigh its advantages and disadvantages. This mortgage binds the home to the lender with no chance of reclaiming the property because as mentioned, selling the house is the only factor that would determine the conclusion of the mortgage.
Living has just become harder with the recession hitting us unprepared. In this case, many of us are looking for better options to get the money that we need to get by. One of the options that you have is getting reverse mortgages. This type of mortgage allows you to receive money depending on the equity of your house. The lender o the financial institution will get their money back along with interest when the house is sold or when the borrower and surviving spouse dies.
Reverse mortgage can be a wonderful solution to a financial problem. However, this type of loan is not for everyone. And you should be on guard against financial agents trying to sell you into getting a loan against your home equity. Here are some of the disadvantages that you should consider before giving in to the sweet sales talk of that agent:
Reverse Home Mortgage can Build Up Debt
While a traditional mortgage is there to help you to finance your home purchase, the reverse type takes your home which is free of debt. In the first one, you make payments every month and eventually pay down the principal amount that you owe your lender. On the other hand, the latter will create a new debt on your home. So instead of clearing yourself of debt little by little, you are actually creating new debt.
Obtaining the Mortgage Actually Involve Significant Costs
All types of loans require fees and pose some costs in the process of availing them. But, some claims that the entire process of getting a loan through this process is quite expensive. You have to spend money on fees for application, appraisal, credit report, monthly service, closing costs and insurance. You still have to pay for property taxes, insurance and repairs if you are allowed to stay at the mortgaged house. And some financial experts can see thousands of dollars in expenses in obtaining a reverse home mortgage as compared the conventional mortgages.
You can be Ineligible for Federal or State Assistance
You may obtain a hefty sum from getting a reverse loan but this can be the cause for you to be denied of low-income assistance from the government like Medi-Cal benefits, Supplemental Social Security Income or SSI and Medicaid. It is, therefore, advisable that you check if your loan will have an adverse effect on any support that you are currently receiving.
You are Not Free to Move
In this type of loan, it is a requirement that the home should be your primary residence. So while you have a mortgage, you are actually not allowed to move out of the house. Besides, moving out of the house soon after getting the loan will mean that you will not recoup with the upfront costs that you have spent just to get the loan. You sure want to travel and experience living in other places when you retire and reverse home mortgage may not allow you so.
Reverse mortgages can be beneficial. Yes, but only to some person and at the right situation. And you could be at a disadvantage if you don’t consider your options wisely before getting involved with this type of loan.
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