Loan Options for Senior Home Owners: Reverse Mortgage Advantages and Disadvantages
A loan option for home owners over the age of 62 is called a reverse mortgage. A reverse mortgage makes the home equity, or real property value, available to seniors that want to remain in their home. Reverse mortgages are used to supplement social security, make home improvements, or to pay for caretakers in the event of injury or illness. Though this type of loan is desirable for some, there are pros and cons to a reverse mortgage that need to be considered and evaluated in order to decide if it is the right option.
Reverse mortgages have certain advantages that make them a principal option for some people.
A reverse mortgage does not consider current income and pays an individual regardless of their financial situation. A second mortgage, or bank home equity loan, measures income against debt ratio and still charges a monthly mortgage payment.
A home owner who takes out a reverse mortgage will never owe more than the property’s appraised value. According to Home and Communities Department of Housing and Urban Development, as long as at least one of the borrowers lives in the house and pays insurance and taxes responsibly, the loan will not need to be repaid.
A reverse mortgage offers five options of payments. A senior can receive equal monthly payments for the duration of residency in the home or they can set their own fixed monthly payments for a set period of time. Another option is a line of credit to be used when needed and until it is gone. Finally, the last two options are a combination of a line of credit with equal monthly payments or a line of credit with fixed monthly payments for a set duration of time.
Just as there are pros with reverse mortgages, there are also cons that should be considered before moving forward with the process.
Bankrate.com states that a disadvantage of a reverse mortgage is that the interest rates are not tax deductible and if one falls behind in expenses such as taxes, insurances and maintenance the loan could become due.
A lender chooses how much to change for various fees, and they can be quite costly. Among these charges are origination fees, service fees and high closing costs.
When considering a reverse mortgage, it is important to do additional research and investigating rather than relying on the word of a reveres mortgage sales person who will only paint an ideal picture. A reverse mortgage is not right for everyone or every family. Reverse mortgages should be a group decision that has been thought through and weighed carefully.