In the case that the borrower sells the home, refinances, or relocates, the loan will have to be repaid.
Because the reverse mortgage uses the equity of the home as its source, it also eats away at the equity with every payment to the homeowner. To meet the qualifications for this loan the home must be fully or almost fully paid off, so usually the house has a high equity to begin with. Homeowners near the end of life will generally have enough equity to last for the duration of their time in the home, however diminished equity also means diminished inheritance for family left behind.
If you have not finished paying off enough of your mortgage, you will have to use a portion of the income from the program to pay off the rest of your home. This means that you will not be able to pocket the full extent of the reverse mortgage, however you will also be able to more quickly pay off your mortgage. However, you may not qualify if you have not paid off enough of your home.
A reverse mortgage comes with a longer span of time between disbursement and repayment, which is an added risk to the lender. This is why they often have higher fees associated with them than traditional loans. In many cases, the benefit of receiving home equity in the form of cash reasonably outweighs the added costs. What is considered worth the investments should be determined on a case by case basis.
Reverse mortgages tend to get a bad rap, and not necessarily for the right reasons. This is partly due to misunderstanding, and partly to dishonest lenders. You can protect yourself by becoming informed about the product you plan to purchase as well as comparing the different services, and reviewing alternate options before making a decision.
It is important to be aware of lenders who make the program sound too good to be true. The disadvantages of a reverse mortgages are not necessarily a deal killer, but they are ever-present and should be taken seriously by lenders. Anyone who tries to diminish the importance of the negative aspects of reverse mortgages may be trying to swindle you. Many of the additional costs associated with a reverse mortgage are there for your own insurance, so a cheaper than average deal may turn out to be less secure in the long run.
Awareness of the disadvantages is the first step toward a successful reverse mortgage. They may sound intimidating, but knowing the facts can help you make appropriate decisions for your needs. Since reverse mortgages are regulated by the government many safety nets are in place to protect consumers. By law, you will receive counseling to ensure that you know what you are getting yourself into. A reverse mortgage is a great way to maintain a fulfilling livelihood and to maintain personal independence during your retirement years. You can never lose your home to the lender and you can custom tailor your program to suit your own needs, from the amount you receive to the rate it is disbursed. A reverse mortgage can be the difference between moving away and staying in the neighborhood that you have made your home. It is a program that, at is best, is designed for the benefit of the homeowner.
A thirteen-year veteran of the mortgage industry, Robert Griffin specializes in reverse mortgages and has helped over 3000 Americans find financial security with a reverse mortgage. The owner of Griffin Financial Mortgage LLC, based in Fort Worth, Texas, his memberships include the National Association of Mortgage Brokers (NAMB), the Mortgage Bankers Association (MBA), the National Reverse Mortgage Lenders Association (NMRLA) and the Better Business Bureau (BBB). Robert Griffin is also co-author of "62 Senior Moments." If you would like more information, please call (866) 683-3690 or visit our Reverse Mortgage Calculator.
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