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Reverse Mortgages Helping Older People

What is a Reverse Mortgage?

In the case of reverse mortgage, which is also known as a conversion mortgage, the home is used as collateral to get the cash amount. We can say that this is similar to a standard mortgage, but for reverse mortgage there are no monthly loan payments and the homeowner doesn't need an income to qualify for this kind of mortgage.

In case of reverse mortgage, the loan amount and the interest on the loan needs to be paid off when the property is either sold or the borrower stops to use it as a primary home or the last surviving borrower dies.

During the homeowner's life time or after his or her death when the property is sold, then with the sale value the loan amount is paid back. The rule will be the same even if the sale price becomes lower than the total amount of the loan and interest.

All the lenders have to accept only the sale price and can not go after the other assets of the homeowner because that is the law.

Some Advantages of Reverse Mortgage

  • Without incurring any monthly expenses a homeowner can pull needed cash from the equity of the home.
  • A Lender cannot force the homeowners to sell the property to pay back the loan.
  • Reverse mortgages give the guarantee that the homeowner can stay on the property until he or she is dying , even if the outstanding loan and interest amount grow to exceed the value of the property.

Few Disadvantages of Reverse Mortgage

  • If you take a reverse mortgage then you have to pay high fees, although the fees are rolled into the loan and not paid upfront. Generally a reverse mortgage costs thousands more than a conventional type of mortgage.
  • You should always calculate the cost of a reverse mortgage against what you would gain, because whenever you are entering in a reverse mortgage agreement, the mortgage company essentially owns your home.
  • It is often seen that reverse mortgage is the last option if the homeowner needs cash and there are no other options left.

Rules of Reverse Mortgages

  • Lenders commonly limit reverse mortgage loans to amounts that are below their estimated full value of the property to decrease their risk.
  • When you are applying for a reverse mortgage then age can be an advantage. For getting a reverse mortgage loan borrowers must be at least age 62, and the older the homeowner is, the more money he or she would qualify. For example, a 70-year-old borrower would qualify for a larger amount of loan than a 62-year-old.

Limits on Reverse Mortgages

Loan limits can vary across the country.

  • The most popular option, the Home Equity Conversion Mortgage, limits loans to $312,896.
  • Fannie Mae Home Keeper loan which comes second in terms of popularity, limits loan amounts to $359,650.

If you are thinking about a reverse mortgage then it is important to acquire as much information as you can, and to consider all of your options.

Selling the home and moving to a less expensive home is the best way for many older homeowners to protect their assets for themselves and for their family.

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