One of the most popular ways for senior citizens to get cash immediately is to apply for a reverse mortgage. Although reverse mortgages aren’t for everyone, they can get senior citizens out of a bind. A reverse mortgage — sometimes known as a conversion mortgage — is different from a regular mortgage in that the home is used for collateral against the loan.
What is a reverse mortgage?
In a reverse mortgage, the sale of the property is used to pay off the loan, as well as the interest. The owner of the property can get cash now from the lender and won’t have to pay off the loan until he or she sells the house. Sometimes, reverse mortgage loans are paid off during the borrower’s lifetime, but more often, the property is sold following his or her death and the estate pays back the loan.
Unlike with other types of mortgages, the lender cannot go after the borrowers other assets if the home sells for less than the borrowed amount. This protects people who take out reverse mortgages from losing everything and ensures that the borrower cannot be left homeless should something happen.
What are some of the advantages of a reverse mortgage?
In some cases, the advantages of obtaining a reverse mortgage are greater than the disadvantages. For one, a reverse mortgage allows the borrower to remain on the property regardless of the depreciating value of the home. For example, if a borrower took out a $100,000 reverse mortgage, he could live on the property until he dies or he can decide to sell it at any point in time. And even if the house value depreciates to $70,000, he cannot be penalized. This allows senior citizens to live without fear of losing their home.
What are some of the disadvantages of a reverse mortgage?
Usually, the fees on a reverse mortgage are exorbitant, even though they aren’t necessarily due up front. Before you sign a reverse mortgage contract, make sure to ask about the specific fees and when they must be paid. It is also true that after you’ve signed a reverse mortgage agreement, the lender or financial institution effectively owns the home. Whether you live there for the rest of your life or sell it in the future, the lender keeps the money generated from the sale. Another disadvantage is that a reverse mortgage is often pursued because the borrowed doesn’t see any other options to get cash. If this is the case, make sure you’ve pursued other possible options before you sign the paperwork.
Are there any limits on reverse mortgages?
First, it should be considered that lenders will usually only consider loans that are beneath the estimated value of the property. Even if a home is expected to increase in value, the bank isn’t going to take that risk. Secondly, reverse mortgages are available only to senior citizens at least sixty-two years of age. The amount of money available will also depend on age; older borrowers will qualify for a larger reverse mortgage loan than a younger borrower.
For many types of reverse mortgages, there is also a ceiling on how much can be loaned. Most of the limits are between $300,000 and $400,000, though they vary depending on the lender.
If you or a family member is considering a reverse mortgage, make sure you research your options carefully. A reverse mortgage might be the perfect solution for one person but be detrimental to another. Further, if your family member is considering a reverse mortgage, make sure he or she is not suffering from any kind of mental degeneration. This is important for making good decisions regarding financial matters.