Everything You Need To Know About Mortgages

The Pros And Cons Of Reverse Mortgage

In recent years, there has been a great deal of interest in obtaining a reverse annuity mortgage and with good reason. This type of mortgage makes it possible for senior homeowners to slowly take out the equity in their home. Senior homeowners don’t have to sell their house to collect the equity nor take out a traditional, home equity loan to do so.

However, not all homeowners are qualified to take out this type of mortgage. There are a few qualifications that a homeowner must meet. In order to qualify, a person must be at least 62 years old. The home should also be paid off already and valued more than the reverse mortgage amount. There can be no additional mortgages or liens on the property.

Homeowners who choose to go with a reverse annuity loan can either receive payment monthly or be paid in one large lump sum amount. Since the mortgage is an annuity, homeowners receive payments on a recurring basis.

This type of mortgage is called a reverse mortgage because the normal order of things is reversed. In a traditional mortgage, homeowners pay down the loan until they completely pay it off. The longer they live in the home and pay the mortgage, the less money they owe. A reverse mortgage does the exact opposite. Rather than paying money, a homeowner gets to receive money for however long the arrangement is. In essence, the monthly payment is how a homeowner is taking out their home equity.

As individuals get older and are unable to work, it can become increasingly difficult to meet their monthly obligations. This is especially true if they have physical ailments which require them to be under a doctor’s care, have to undergo expensive medical procedures or purchase medications. Those monthly payments the homeowner receives via a reverse mortgage loan can make a huge difference, providing them with money that they desperately need.

Another reason a homeowner might want to obtain a reverse mortgage loan is to get the equity out of a home they don’t plan on moving out or selling. Older people who own their home can benefit from the equity they have built. This might be especially true of those who don’t have any surviving family members.

Below are the reverse mortgage pros and cons:

Pros:

* This can be a good way for homeowners to benefit from the equity in their home.

* Allows homeowners to continue to live in their home. There’s no need to sell it to collect the equity.

* Homeowners on a limited budget have supplemental income.

* Doesn’t affect social security or Medicare benefits.

Cons:

* Homeowners must be 62 years old.

* Homeowners will develop a loan balance as they borrow against the equity in their home which will eventually have to be repaid.

* There are fees involved: closing costs, origination fees, and service charges or insurance premiums.

* The home can be defaulted on if the home’s taxes are not paid, the home is not well maintained (has fallen into disrepair), the homeowner fails to keep up with their insurance payments and/or the money borrowed via the annuity is not repaid.

There are advantages and disadvantages associated with a reverse mortgage. For the right person, however, obtaining a reverse annuity mortgage is a good move.
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