What Makes a Reverse Mortgage Unique

What Is Reverse Mortgage

Over the years, we have seen the U.S. Department of Housing and Urban Development create a variety of mortgages to meet the many demands of home buyers.  However, one question that is being asked more and more is what is reverse mortgage and is it a good choice.

In answer to “what is a 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.

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.

Advantages

The first value of what is a reverse mortgage is about having the freedom to spend the money as wanted.  Some people have worked hard a lifetime and now in the “golden years” want to travel the world to enjoy the fruits of their labor.  However, these funds can also come in handy in the case of paying bills or doing major repairs on the home.

However, one of the huge benefits of a reverse mortgage is that for many elderly living on a limited income from savings, pension, or Social Security, these funds can help supplement, making day to day living more manageable.  Then, with the money being non-taxable and with no income restrictions, it is definitely a consideration for a lot of people.

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.

The Down Side

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.

For many people, the value of what is a reverse mortgage far outweighs any potential risks.  While this can be an excellent option, anyone going this route needs to have a clear and full picture of what is expected.  That way, as time goes on, there are no unpleasant surprises.  Remember, the staff at HUD is always available to help in any way possible so take advantage of their service.

Reverse Mortgage Quote

What is a Reverse Mortgage

This video helps to explain some of the details on Reverse Mortgages.