UK Payday Loans BlogWhat Is Reverse Mortgage
What Is Reverse Mortgage
The United States Department of Housing and Urban Development, more commonly referred to as HUD, has long been the leader when it comes to the home mortgage. Over time, we have watched the world of mortgage grow and evolve. One option that people need to educate themselves on has to do with the real value of 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.
One of the aspects of a reverse mortgage is that the homeowner does not have to have his or her income checked. Even so, to determine how much money can be taken out, the interest rate on the loan, and even the monthly payment, a number of things are looked at by the lender. As a starter, the borrower has to be at minimum, 62 years of age. Then, the homeowner must live full-time in the home, have adequate equity, and complete a special counseling session provided by HUD.
In answer to what is a reverse mortgage and is it a good choice, there are other things that come into play. As far as how the money is distributed to the homeowner, there are three options to include taking a lump sum, getting a specified monthly check, having a line of credit, or the homeowner can mix and match the choices. Keep in mind that paying back on this type of mortgage does not take place unless the homeowner moves, sells the home, or should die.
Of course, while there are many incredible value factors for what is a reverse mortgage, gaining knowledge about the good and bad is what will ultimately help the homeowner move in the right direction. As you will see below, consider the good and bad sides to a reverse mortgage prior to making your final decision.
The Up Side
The first good thing in response to what is a reverse mortgage and is it a good choice is to know that the funds coming from the home’s equity can be used in whatever way the homeowner prefers. This means the money could be used to take vacations, add on to or improve the home, send a child or grandchild off to college, pay off bills, have surgery, etc.
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
As there is a positive side to the question what is a reverse mortgage and is it a good choice, there is also a negative side. For instance, interest on this type of loan is variable so the payment on a reverse mortgage opposed to a more traditional loan would be higher. Additionally, the fees that go along with a reverse mortgage are also higher such as closing costs, application processing fees, insurance, appraisal, and so on.
The final aspect that goes with the question of what is a reverse mortgage and is it a good choice has to do with the condition of the home, which could make or break the deal. Lenders want to see sound construction and the home in good repair. The positive side of this is that if repairs are needed to complete the reverse mortgage process, then any costs could simply be rolled into the mortgage.