Senior reverse mortgages are different from traditional home loans in several ways. Before you decide to get a reverse mortgage, it’s a good idea to learn as much as you can about them; learn such things as how they work, their benefits and even their drawbacks.
With a reverse mortgage, you never have to make monthly repayments for as long as you live in your home. As a matter of fact, the opposite occurs: the lender pays you money. You can get money from a bank when you have a reverse mortgage in one of three different ways: a lump sum, a line of credit or monthly payments.
Because you get payments from the lender, the debt in your home increases as time goes by and you get more money from the loan. At the same time, the equity in your house decreases as you get those payments.
Whenever the time comes to pay back your reverse mortgage - you move out of the home or you die -, the debt may be large and you may have little equity left in the house. However, no matter how much money you owe, it can never be more than the value of the home.
Since you don’t need to make any monthly repayments, you don’t need any type of income to qualify. You could have no income and still qualify for a reverse mortgage. Also, your credit history is of no concern.
The main requirements when applying for a reverse mortgage are that you are at least 62 years old, and that there is enough equity in your home.
How much money you can borrow depends on three factors:
How old you are
The current market rate
Your home appraised value or the FHA’s home mortgage limit for your area
As a general rule, the older you are, the more expensive your home is and the lower the interest rates are, the more money you can borrow with a seniors reverse mortgage.
You need to remember that since you keep ownership of your home, you are still required to pay your real estate taxes, insurance, maintenance costs, etc.
Senior Reverse Mortgage Benefits
A reverse mortgage has many pros associated with it. These are some of the main ones:
You won’t need to leave your home. You can stay living in your home for as long as you want.
You won’t need any income to qualify. The lender is the making the payments.
You don’t have to make any payments on a reverse home mortgage
You can’t ever loose your home because you don’t make mortgage payments.
You can never be thrown out of your home for as long as you stay living in it. However, you still need to make real estate, insurance and maintenance payments.
You can use the money from the seniors reverse mortgage for any purpose you want
The funds are usually tax deductible
Most senior reverse mortgages have no income limitations
Your Social Security and Medicare payments are for most people not affected
Senior Reverse Mortgage Drawbacks
As with any other type of mortgage, reverse mortgages have some drawbacks to using them. Of course, many of them are only potential and depending on your individual situation. Nevertheless, it’s a good idea for you to know about these drawbacks before choosing a reverse mortgage.
These are a few things you want to consider before choosing a reverse mortgage:
Most all reverse mortgages have variable interest rates. Your rates will vary as the market changes.
Since reverse home mortgages work by decreasing your home equity, you can use up the majority of your home equity, leaving few funds left from the sale of the house for you and your heirs. However, a “non-recourse” clause ensures that you never owe more than the home is worth.
Since you keep ownership of the home, you are still responsible for real estate taxes, insurance and maintenance costs.
Most lenders charge origination fees and other closing costs for a senior reverse mortgage. Banks may also charge servicing fees during the duration of the reverse mortgage. These fees are already included in the mortgage.
The interest portion of a reverse mortgage is not deductible in your tax returns until the home loan is paid off (in part or whole.)
There is usually a less expensive solution to your financial problems ( a credit line, refinancing your present home mortgage, etc.)
To reduce some of these drawbacks, make sure you apply for your reverse mortgage through a trustworthy company who will educate you throughout the reverse mortgage process and beyond.