| The couple purchased their
home 45 years ago for about $14,000 since
then home values have skyrocketed and
recent single family homes in their neighborhood
have been selling for a minimum of $160,000.
Like Betty and John, if you're considering
a reverse mortgage it's important
to do some research prior to making
a decision. You not only need to understand
the basic principles of this kind of
mortgage but you also need to look at
all the advantages and disadvantages
of a reverse mortgage.
Essentially a reverse mortgage
is a loan that permits homeowners 62
years of age and older to borrow against
the equity in their homes without having
to sell it. Further, you don't have
to give up the title or take on a new
monthly mortgage payment.
A reverse mortgage loan is tax-free
and needs only to be repaid when the
borrower (or in the case of Betty and
John, when the surviving spouse) dies
or sells the home. At which time, the
reverse mortgage loan must be
repaid in full, including all interest
and other charges.
When examining the advantages and disadvantages
of a reverse mortgage it's also
important to consider both the process
and the related costs of obtaining a
reverse mortgage.
Unlike a conventional mortgage, with
a reverse mortgage, the homeowner
(the potential borrower) must meet with
a reverse mortgage counselor.
References for counselors can be obtained
from banks offering reverse mortgages
or the U.S. Department of Housing and
Urban Development (HUD).
The purpose of these meetings which
may take place in person or on the telephone
is for the homeowner to learn about
reverse mortgages and discuss alternative
options. It also helps you decide which
kind of reverse mortgage may
be best.
As well as exploring the advantages
and disadvantages of a reverse mortgage,
it's wise that the potential borrower,
also compare costs between various lenders
and request a
Total Annual Loan Cost estimate
for each.
Further to discussing the advantages
and disadvantages of a reverse mortgage
with a counselor, you also need to understand
that there are certain costs involved
in the reverse mortgage process.
Costs may include application fees,
closing costs, insurance, appraisal
fees, credit report fees, and quite
possibly a monthly service fee.
Remember too that since a reverse
mortgage allows you to continue
living in your home, you're still responsible
for property taxes, insurance and repairs.
If these payments are not maintained,
the loan could become due in full.
A reverse mortgage may also
affect eligibility for federal or state
assistance as well as Medicaid. That
said, any reverse mortgage money
that is received is tax-free and does
not affect Social Security or Medicare
benefits.
The condition of your home is also
a large part of the approval process.
It must be structurally sound and in
good repair. If it's determined that
home repairs need to be done, the costs
can also be financed through the reverse
mortgage loan.
The total amount a homeowner can borrow
all depends on the kind of reverse
mortgage selected, how much equity
is in the home, the loan's interest
rate and most importantly, the age of
the borrower. Typically the older a
person is, the more they can expect
to receive.
A borrower can receive reverse mortgage
payments in one of the following ways:
in a lump-sum payment; fixed monthly
payments; a line of credit or a combination
of any of the above. Most homeowners
go for the line of credit option which
allows them to draw on the loan whenever
money is required.
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