Is a Reverse Mortgage Right for You?

By: loan11


Reverse mortgages have risen to popularity in recent years due to their relative ease and the way that they are geared more toward the needs of senior citizens. Many financial consultants are recommending these loans for those seniors who are having trouble making ends meet on a fixed income or who would like to have a bit more financial freedom than they currently have. This doesn’t mean that reverse mortgages are right for everyone, of course; as with any loan, they are a major commitment and should not be entered into lightly. By learning more about reverse mortgages, you can make an education decision as to whether these loans are right for your specific financial needs.

Age Requirement


Reverse mortgages are only available to individuals who are 62 years of age or older. They are
designed to provide a means of attaining additional financial security and stability for those who are reaching retirement age or who are living on a limited income due to Social Security payments, and aren’t available for those who have not yet reached retirement age. Your age will also help to determine the amount that you can borrow and the amount that you will receive each month if you choose to receive the loan in monthly payments.

Home Ownership


In order to qualify for a reverse mortgage, you must first own your home completely with no additional mortgage debt remaining. The value of your home will be a large determining factor in the amount that you can borrow with a reverse mortgage, since your home’s value is what is being used as collateral to secure the loan.

Payment Considerations


There are three ways that you can receive money from a reverse mortgage loan: you can receive the money as a lump sum payment, a line of credit, or as a continuing monthly payment. Before taking out a reverse mortgage you should stop to consider which of these would be best to meet your financial needs. A lump sum payment provides you with a large amount of money at once while a line of credit provides you with access to the money that you borrow as you need it in a manner similar to a credit card account. The most popular option for reverse mortgages is the monthly payment option, as it provides a check each month for as long as you live in the house that is being used as collateral. The payments can continue even when you have received more than the value of your home.

Interest


Reverse mortgages charge interest just like any other loan, and in some cases the interest rate can be higher than you would find on similar loans. Since reverse mortgage loans can pay out over the course of several years, a significant amount of interest can accrue by the time you decide to move or the loan is repaid. The amount borrowed by a reverse mortgage is designed to be repaid by the value of the house when it is sold, but interest can cause the total amount due to cost the full value of the home even if you did not borrow that amount.

Closing Costs


Reverse mortgage loans almost always have closing costs, and many lenders feature closing costs that can be quite steep. Like with many other loan types that feature costs such as these, the closing costs are generally required out-of-pocket and are not covered by the amount borrowed in the loan. This can make finances tight in the month that the loan is processed, and depending on processing time it may be one or more weeks before the loan funds become available to help make up the difference. There may be other fees and assorted costs associated with the loan as well, and depending on the lender some of these may not be obvious at first.

Repayment


A reverse mortgage loan doesn’t require a monthly payment for as long as you live in the house
that is being used as collateral to secure the loan, though payments can be made if you so desire to help pay down the accumulated interest or reduce the principal on which interest is being charged. When you move or the house is no longer in your possession, the borrowed amount plus interest is considered to be due in full regardless of the amount that is owed. These loans are designed to be repaid by the profits from selling the house, and as such may require most if not all of the amount made from the sale in order to cover the repayment if payments are not made.

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Lisa Parker is a freelance writer who focuses on specific topics in the mortgage industry such as reverse mortgage.

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