Thinking of reverse mortgage as an option to help reduce some monthly bills? More and more senior citizens are turning to reverse mortgages to help alleviate some of their spending and expenses. But, it can be a tricky road for someone who does not fully understand the way the system works. It is important for anyone considering this option to know what they are getting into and understanding some of the pros and cons of reverse mortgages.
How can one benefit from taking out a loan of this type?
A reverse mortgage is a great option for many people as it allows them to stay in their homes when times are tough and the funds are not always available to make payments on a monthly basis. The loan received from the equity in the home can be used to pay off existing mortgages on the home. It is pretty easy to qualify for as it does not require the applicants to have a minimum credit score, and most of the time no income requirements are needed. As long as the homeowner lives in the home and the required conditions are met, such as paying property taxes and continuing insurance, they are not required to make monthly mortgage payments.
Payment options are very flexible and can be set up according to each homeowner's needs or requirements. A homeowner that needs money quickly in order to cover costs of an unforeseen emergency can receive a credit line or lump sum payment whereas someone that just needs a little extra help with bills each month may be able to receive monthly installments.
Another great aspect of a reverse mortgage is that in the event that something happens to the homeowner, the heirs will never be responsible to pay back anything more than what the home is sold for and if the balance of the loan is paid off, the heirs inherit the home and are eligible to keep any remaining equity for themselves.
What are some possible disadvantages of a reverse mortgage?
Though a reverse mortgage can never become upside down, the balance of the loan does increase over time causing the value of the property or inheritance to decrease. This factor is definitely something that homeowners should keep in mind when considering the well-being of their heirs. It is also important to keep in mind that the fees on these types of loans are typically comparable to those of a traditional FHA loan however, they are higher than those of a conventional option which will in turn drive up the closing cost.
One of the biggest factors that homeowners need to keep in mind and be aware of is that the amount withdrawn can have an effect on their Medicaid and other need-based government programs (excluding Social Security and Medicare). To help seniors determine if their benefits will be affected, HUD requires them to attend counseling led by an independent HUD counselor.
Reverse mortgages are complex loans and should be fully understood before the homeowner makes the decision to go through with them. Some people may want to consider some alternatives such as simply refinancing their home or taking out a line of equity. The most important thing for one to do is to research all available options and determine which method is best for their particular situation.