A reverse loan may prove to be the best mortgage choice for seniors today. This type of loan is becoming rapidly popular proving a great deal of benefit to seniors who have lived and paid for a home mortgage for many years.
Home as Collateral
A home is used as collateral to obtain cash in a reverse mortgage, or home equity loan. Therefore, unlike standard mortgage qualifying procedures, seniors need no monthly income making this possibly the best mortgage option for using built-up equity in the retirement years. The costs of the loan, principal and interest, are paid off once the house is sold.
Costs Higher than Standard
The first consideration selecting a reverse home equity loan as the best mortgage choice is it will come with a higher interest rate. Normally, when interest compounds through the term of any loan, a point may arrive where the loan payback is greater than the collateral value. That’s why it is important to obtain a “no negative equity” guarantee. However, there will be certain obligations attached to the loan that dictate the property be maintained at a certain level. If the person taking out the loan dies, and there is no survivor aspect to the loan, any other person living in the home may be required to move. Additionally, sometimes receiving a reverse mortgage loan affects a person’s pension eligibility. Furthermore, if the loan has a fixed period, you may be left with the only option selling the house to repay the loan if you have outlived this fixed period. As bleak as the above sounds, there are great advantages to seniors choosing to use available equity making this the best mortgage selection.
Funding Retirement Years
A reverse home equity loan may be the best mortgage when homeowners seek to pull cash from the equity without having to make monthly repayments. People facing low cash flow with debt obligation, or having a desire to travel, see the grandkids, vacation in the States, etc., might find this method the best mortgage to finance such a plan. Lenders cannot force a consumer to sell the property to repay a loan. In fact, reverse mortgages require no repayment of any interest, principal or any other loan-related fees as long as the borrower continues to live in the house. Funds received from a reverse mortgage can help retirees generate a greater cash flow allowing a homeowner age 62 or older to use the built-up equity for any purpose whether to make repairs, pay property taxes, monthly bills or for any purpose. Plus, amounts are based on the age of the borrower, so a 70-year-old can obtain more money than a 62-year-old, the minimum age to qualify.
There are recent reforms specific to reverse mortgages that state:
• Declaration at what point in time the amount to be repaid is greater than the home equity
• What effect the loan has upon the borrower’s pension and tax situation
• Estate planning need to be a consideration discussing a reverse home equity loan as the best mortgage product
Consult with family and a professional finance counsellor to determine if this is the best mortgage to meet your personal needs.
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