What Is Reverse Mortgage
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?"
In answer to "what is reverse mortgage", this is actually a private type of loan but one that is insured by the federal government. What makes a reverse mortgage unique is that a portion of the equity in the home is converted to cash, which can then be used by the homeowner in whatever way they see fit. Because qualifications and restrictions are associated with a reverse mortgage, it is used by the elderly, many times as a means of financial security.
With this particular type of mortgage, the homeowner's income does not have to be validated for the approval process. However, for the amount of loan, interest rate, and monthly payments to be established, several factors are considered. As an example, a person who asks "what is reverse mortgage" needs to know that the minimum age requirement is 62. Additionally, the homeowner has to own and live in the home, and complete a mandated HUD counseling session.
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
One of the primary benefits linked to a reverse mortgage is that the homeowner is allowed to use the home's equity for numerous things. For example, the money could be used to travel, make updates on the home, and pay off medical bills, or send a grandchild to college, and so on. However, in trying to manage bills during later years, many homeowners use reverse mortgage funds to supplement a retirement account, savings, or Social Security income.
Another advantage of a reverse mortgage is that all the money being taken out against the equity is completely tax free and, there are zero restrictions on income. This means if the homeowner is bringing in only a small amount of money each month on which to live, or has no income at all, he or she would still qualify to use money from the equity.
Without verification on income and no monthly payments until dying, moving, or selling, the reverse mortgage is beneficial to many. For the elderly homeowner, a mortgage such as this allows them to continue on with a certain lifestyle without being overwhelmed. People who have worked long and hard their entire life can use funds from a reverse mortgage to kick back and enjoy life.
Finally, if the homeowner were to pass away, any heirs would have the legal option to refinance the loan 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.
Disadvantages
The other side of the question "what is reverse mortgage", you need to understand that along with pros, there are also some cons. One is that the interest rate attached to the loan is variable. This means the repayment would be more costly than that of a traditional type of refinance mortgage and that in the case of death; any family members would likely have little to no equity to inherit. Of course, any other savings, pension, or assets that would be left to refinancing mortgage family members would not be affected whatsoever by the reverse mortgage.
Unlike more traditional mortgages, a reverse mortgage is generally expensive to secure. Some of the connected costs include application fees, insurance, closing costs, appraisal, and in some cases, a monthly fee for the loan being managed by the lender. This in addition to the continuance of other home fees such as insurance, tax, repairs, homeowner association dues, and so on would need to be considered too.
Then, when looking at "what is reverse mortgage" and possible disadvantages, keep in mind that the home's condition would also be a factor looked at by the lender. For the loan process to be finalized, the home would have to be deemed structurally sound and in good condition. However, if problems are identified, most often any needed repairs to bring the home to set standards would be added into the reverse mortgage loan.
As you can see, there is a lot of information that follows the question of "what is reverse mortgage". Learning all you can puts you in a position of making the best decision for you.
Find the latest information on reverse mortgagees visit What Is Reverse Mortgage and Reverse Mortgage Rates as well as Reverse Mortgage Information
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