Although there are many mortgage options now being offered to potential homebuyers, one that has received a lot of attention is the reverse mortgage. The United States Department of Housing and Urban Development, also known as HUD, is currently being inundated with questions with a large number of people asking “what is reverse mortgage?”
One of the things that make a reverse mortgage different from others is that it is a private loan, although it also has the backing from the federal government. For homeowners who are 62 years and older, who own and live in the home, and have built up equity over the years, there are funds that can be used in any way wanted.
One of the aspects of a reverse mortgage is that the homeowner does not have to have his or her income checked. Even so, to determine how much money can be taken out, the reverse mortgage rates on the loan, and even the monthly payment, a number of things are looked at by the lender. As a starter, the borrower has to be at minimum, 62 years of age. Then, the homeowner must live full-time in the home, have adequate equity, and complete a special counseling session provided by HUD.
Other important information that goes along with the question “what is reverse mortgage” is that the homeowner can choose the way in which the funds are distributed. For instance, money can come to the homeowner as a monthly payment, a lump sum, a specified line of credit, or any combination of the three. The most critical piece of information is that the mortgage on the home is not paid until after the homeowner passes away, moves, or sells the residence.
Along with the question of what is reverse mortgage, interested parties should understand the advantages and disadvantages associated. Some people view a reverse mortgage as a godsend while others see it as a potential risk. The best advice is to learn all you can so any decision is an educated decision.
Advantages
The first good thing in response to what is a reverse mortgage and is it a good choice is to know that the funds coming from the home’s equity can be used in whatever way the homeowner prefers. This means the money could be used to take vacations, add on to or improve the home, send a child or grandchild off to college, pay off bills, have surgery, etc.
However, one of the huge benefits of a reverse mortgage is that for many elderly living on a limited income from savings, pension, or Social Security, these funds can help supplement, making day to day living more manageable. Then, with the money being non-taxable and with no income restrictions, it is definitely a consideration for a lot of people.
Until the time comes when the homeowner moves, sells the property, or passes away, not having to have pay the money back is a huge blessing. Now, if there were family members in the homeowner’s will, once the homeowner passes away, the reverse mortgage could be refinanced. The key here is that with several variations for this type of mortgage, anyone interested needs to consider all options before signing on the dotted line
Finally, if the homeowner were to pass away, any heirs would have the legal option to refinance the loan with the reverse mortgage provider to that of a more traditional loan. However, there are variances of the reverse mortgage so is inheritance issues are important to the homeowner, these options need to be reviewed and analyzed carefully.
The Down Side
As you can see from the information provided above, there is tremendous value associated with what is a reverse mortgage. Unfortunately, there are also some downsides to this type of loan that should be reviewed. First, there are fees associated with any loan such as application fee, appraisal, insurance, closing, etc. However, in the case of a reverse mortgage, the fees are typically higher and in fact, there are some lenders that will also tack on a service fee of some kind.
Then, along with the value of what is a reverse mortgage, consider that for the application to be approved and the funding to become available, the house has to be in good order. This means the structure itself has to be sound and there should be no serious repairs. Even with this, there is a good note in that if the homeowner were faced with problems of repair, most lenders of a reverse mortgage would simply add the cost into the principal of the loan.
For many people, the value of what is a reverse mortgage far outweighs any potential risks. While this can be an excellent option, anyone going this route needs to have a clear and full picture of what is expected. That way, as time goes on, there are no unpleasant surprises. Remember, the staff at HUD is always available to help in any way possible so take advantage of their service.