Is A Reverse Mortgage Right For You?

Retirement can be a nice thought for many of us. However, for those who have no retirement plan set up, it can be a problem. For older people age 62 and above, one program can help them out. This program is called reversed mortgage. In reversed mortgage the lender gives the borrower money depending on their transactions.

Reverse Mortgage In-depth

In reverse mortgage, the owner of the house mortgage part of their home to a lending institution. These institutions can be a private lending company, a local government agency or a bank. Once the borrower mortgage the house, the lender will give certain amount or cash to the borrower with the latter having no duty to pay it back. The loan is paid when the borrower (a) dies (b) sell their home and (c) the property is no longer the primary residence.

Borrowers has three options to choose. The first, one is the single purpose reversed mortgage. This mortgage type is exclusive for one purpose only. An example would be to use the cash to do home repair. This mortgage type is usually available from the local government agency or a non-profit organization.

HECMS or the Home Equity Conversion Mortgage and Proprietary are the two other types of reverse mortgage. HECMS is a program by the US HUD and the proprietary reversed mortgage are usually programs by private entities. Charges for the two types are quite high however there are no restriction as to the cash use. The amount of cash that one can borrow depends on the equity or appraised value of the home. It also considers the age of the borrower, the current rates and the payment options that one choose.

Pros and Cons of Reverse Mortgages

Before availing of the reverse mortgage program, it is important that borrowers understand the pros and cons of the program. There are many benefits that one can have when one avail of the program including (1) living in their home without fear of foreclosure, (2) still the titleholder of the property, (3) have cash to supplement their retirement  and  lastly (4) increase the money that they can borrow as they grow older.

Although the benefits are attractive, borrowers should also consider some disadvantage concerning the program. As reversed mortgage has high upfront fee, the amount one might receive is smaller than the actual value of the equity. Although the fee is deducted to the total loan amount, it greatly reduce the cash one will be able to receive. Another thing to consider is that borrower's will not be able to leave their home for a year or move in into nursing homes, as the mortgage will become due immediately...read more for reverse mortgage pros and cons.

To prevent any violation of the contract, it is important that borrowers understand and learn everything they can about reverse mortgage this would ensure that they will not forfeit on the contract. You can also use online aar reverse mortgage calculator for free to get an estimate of the whole cost.