Advantages & Disadvantages of Reverse Mortgage

Posted on 29 November 2010

The advantages and disadvantages of reverse mortgage have become favorite topic in the United States. This is due to its increased demand. This home loan is specially designed for the senior citizens of United States. To take out this mortgage, you must be 62 or more years of age. This mortgage provides financial aid to the senior citizens. The amount which is gained from this loan can be used for various things such as; you can invest it to home renovation, to raise your living standards etc. Due to all these things, people are now more interested in taking out this loan. You might find them asking about the advantages and disadvantages of reverse mortgage loan. Before knowing its pros and cons, you must know what reverse mortgage is.

Reverse Mortgage or Long Life Mortgage

Reverse mortgage is also referred to as the long life mortgage. It is a loan for citizen aged 62 years or above and they possess houses. Another type of loan is called the Home Equity Conversion Mortgage (HECM) that is federally insured.

Structure of Reverse Mortgage

With reverse mortgage loans, borrowers are not required to make payments to the lenders. Amount of interest is also accumulated on property and lien on it. It is necessary for you to pay off all other liabilities before talking out reverse mortgage loan. The maximum amount of loan that you can borrow with reverse mortgage is $625,000 regardless of the value of the property. The mark up value depends on the appraisal value and mode of loan processing.

Benefits of Reverse Mortgage

  • It is one of the best financial tools for senior citizens to meet their financial needs.
  • Senior homeowner can have lump sum amount of money, credit line or via monthly payments.
  • There are no periodic or monthly payments associated with reverse mortgage.
  • There are no tough and strict requirements to qualify for the loan. That’s because credit score and income of homeowner doesn’t matter.
  • The value of property determines the liability of loan. If property value drops after getting the loan then homeowners can pay off the amount which is equal to property.
  • You don’t have to evacuate fro your home, if you need money to settle down the liability or need.
  • Mortgage rates are comparative.
  • There are no additional charges or penalties if you want to make balloon payments.

Disadvantages of Reverse Mortgage Loan

  • It implies higher interest rates in order to alleviate the risk.
  • No assets for the beneficiaries.
  • You are required to arrange all the lump sum which is due on you. You have to do this when you are required to make payment.
  • You have to attend a short course of counseling arranged by an independent HUD counselor.
  • Your medical assistance and other advantages of retirement may get hurt by the terms and conditions of reverse mortgage. In this regard, counseling is highly advised.
  • Loan origin fee is high.

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