It’s important to realize that reverse mortgage lenders are in business to make as much money as possible. The loan that you have taken out is secured by your home until you sell it, refinance or permanently leave this world. Therefore, the lender needs to guarantee that he or she will eventually get repaid with interest. Naturally, this brings up the question as to why are there disadvantages to a reverse mortgage?

The Risk Factor and Higher Costs Represent Disadvantages to a Reverse Mortgage.

First of all, reverse mortgages are very risky to the lender because you could live for a very long time and in actuality you could outlive the value of your home. The lender does not get paid until the ownership changes hands. In this regard, the lender often charges very high interest rates or closing costs in exchange for the risk. This is one of the reasons why there is a disadvantage to a reverse mortgage.

Higher Qualification Standards for a Reverse Mortgage Results in Lower Equity Take Out.

Another reason why there is a disadvantage to a reverse mortgage is that in order to qualify for a reverse mortgage a lot of equity is required. The typical lender will only offer the mortgage at 30% to 60% of the value of the property, depending upon your age. This means that borrowers may have to give the lender some of their savings in order to qualify for the reverse mortgage. It’s important to note that the interest is added to the principal amount. Therefore, a lot of equity must exist.

Your Estate and Your Heirs will be affected.

Additionally, when asking the question as to why there are disadvantages to a reverse mortgage, it’s important to note that you will have less equity in your property which will affect your heirs upon the liquidation of your property. They will not receive as much money as they might have anticipated.

Many Reverse Mortgage Lenders are Shady.

It must also be mentioned that many reverse mortgage lenders are seedy and unscrupulous. They will do almost anything to make the sale. Therefore, it is important that you deal with a reputable and stable company. The true facts are important in order for you to make an informed decision.

You Need to Carefully Evaluate Your Financial Requirements During the Remainder of Your Life.

Lastly, it’s important to note that one of the main disadvantages of a reverse mortgage is that it may not satisfy your financial needs for the rest of your life. Once the money is used, it is gone and an increase in monthly payment to you may not be possible.

All of the above reasons make for a pretty good case as to why there are disadvantages to a reverse mortgage.

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What Is The Process In Obtaining A Reverse Mortgage? There are several different ways to go about obtaining a reverse mortgage. You can generally talk about a respectable reverse mortgage rate that has a six percent interest charge. A bank should be able to arrange this for you, if they do not arrange this for you then their housing department and in particular their financing department are not being as professional as they could be. The truth of the matter is that the housing market is so unpredictable right now within so many communities, it truly is hard to say what kind of rate you can get on your reverse mortgage.

Online Resources

What Is The Process In Obtaining A Reverse Mortgage? You can obtain a lot of this information from online sources. The truth of the matter is that many people prefer the use of a face to face meeting in order to obtain a reverse mortgage. This meeting helps people get comfortable with the concept of the reverse mortgage and helps them understand the terms of the mortgage. The online option does not create as much stress for the buyer. It also limits the chance of personal confrontation between the loaner and the person getting the loan. The vetting process isn’t as strong in the online situation and bad business decisions really can come back to bite you.

Foreclosures

What Is The Process In Obtaining A Reverse Mortgage? The number of foreclosures out there may in fact make it easier for you to get a reverse mortgage on the terms that you want. The banks out there often want to get the negative assets off their books that they can’t afford and this would include homes which have been foreclosed upon.

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When you receive a reverse mortgage there is an amount set aside for the maintenance of your account. Lenders, under federal regulations, can charge between 30 and 35 dollars a month to “maintain” your account. This maintenance includes all paperwork associated with tracking the account and disbursing the funds. This amount is set aside before any money is given to the borrower. Depending on the life expectancy of the borrower, this fee can add up to several thousands of dollars.

What are some of the related costs of getting a reverse mortgage?

When you apply for a reverse mortgage you should expect to pay the following fees: Origination fees. These fees are the costs associated with the operating expenses of the lender. These fees are genrally 2% of the value of the loan up to 200k. Any additional monies will be charged at 1% with an overall cap at a $6000 fee. There will be an appraisal fee for the property, closing costs on the documentation and a set aside fee for maintenance of the account. If you are using an FHA reverse mortgage you will also be required to pay a mortgage insurance premium.

Do all reverse mortgages have these fees?

All mortgage processing companies attach fees to their services. It is the job of the consumer to find a lender offering the best deal. While lenders may have caps on the amount they can charge, they do not have set fees to follow. One lender may not charge closing costs while another offers free maintenance on the account. Prior to entering into a reverse mortgage contract the borrower should know all the fees and find the best deal.

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What Is a Reverse Mortgage?

Reverse mortgages in the past were often viewed negatively but today many see reverse mortgages differently, as a way to keep their home and help with finances. Reverse mortgage is a loan that gives homeowners 62 and older access to the equity that has been building up in their home. Once the homeowner has access to this equity, he or she can use that money in various ways such as making improvements to their home, paying medical bills or taking care of living expenses.

Facts About Reverse Mortgages

There is no repayment of the loan until the borrower sells the home or does not live in the home for more than a year. When the house is sold, the loan must be repaid, including interest. Should the borrower have to go to a nursing home and be there for more than a year, then the loan must be repaid.

The borrower can live in the home once the loan has been set up, even if a co-borrower dies.

There are no monthly payments. But, property taxes must be paid, homeowners insurance must continue and the home must be maintained. The funds that are received from the reverse mortgage have no affect on Social Security or Medicaid benefits, but benefits that come from Medicaid and Supplemental Security Income may be affected. (Check on these two areas if you find that this might be a restriction.)

A prospective borrower can still qualify, even if he or she is still paying on a conventional mortgage. The proceeds that come from the reverse mortgage will be used; however, to first pay off the existing mortgage.
There are negative aspects of a reverse mortgage and they are:

Your debt will rise
There will be fewer assets for you or your heirs
There will be higher costs when the loan begins.

So, how common are reverse Mortgages? Statistics show that reverse mortgages are quite popular and its popularity is growing. With our economy still in bad shape, it is clear that reverse mortgages may be the answer to keeping one’s home and holding on to one’s finances. But, as with any loan, be sure to check out the facts before signing up.

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A reverse mortgage counselor is instructed to review several contingencies prior to recommending a reverse mortgage. They must verify if the applicant(s) qualify under the federal guidelines first, and foremost. Next they must consider all financial implications of the mortgage. This will include if the costs associated with a reverse mortgage, the amount available to the borrower and any tax consequences associated with the transaction. This is a fail safe measure that is meant to make sure the borrower understands the entire process. If the reverse mortgage will not benefit the borrower, they may recommend other options for financial stability.

Can I go against the wishes of my counselor?

While advice from a financial counselor is strongly advised to be used, you can still apply for a reverse mortgage even if you are discouraged not to do so. The credit counseling is used so the consumer can understand all the aspects of the transaction. Consumers should heed the advice of the counselor if possible. Many times the costs associated with the reverse mortgage far outweigh the benefits that the recipient will receive. Another common issue is inheritance. If it is mandatory that the heirs receive the home, reverse mortgages may not be the right choice.

Who gives reverse mortgage counseling?

You can receive counseling from any HUD approved counseling agency. There are also other agencies offering this service that are not affiliated with HUD. National counseling agencies such as the Council on Aging, Consumer Credit or many other non profit organizations qualify for reverse mortgage counseling. Counseling is required for any reverse mortgage transaction. If you are going to apply for a reverse mortgage you should seek out the assistance of a credit counselor prior to starting the application process.

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Most senior owned and occupied single family homes are eligible for a reverse mortgage loan. An FHA or a reverse mortgage lender online site is a convenient way to review the types of homes on the approved list. Condominiums, 1-4 unit structures, and some mobile or manufactured homes are also listed as appropriate homes for a reverse mortgage. The property owners are required to live in one unit of the multi family structure in order to qualify for the loan. Not all mobile and manufactured homes meet the single family restrictions, but many are approved for this type of mortgage program.

Reverse Mortgage for Senior Citizens

Senior homeowners who are at least 62 years old may consider a reverse mortgage to increase their income. A home that is paid for or one that carries a small balance is a good candidate for this type of program. A large portion of the equity that has accrued throughout years of mortgage payments can be accessed and returned to the property owners. This tax-free money is disbursed to the homeowners in the form of monthly payments, a line of credit, or one lump sum payment. The funds do not adversely affect Social Security earnings or Medicare benefits.

A Reverse Mortgage Choice

A reverse mortgage serves as supplemental income for seniors during their retirement years. The money may be used to make home repairs and improvements, or pay off debt. This mortgage program offers peace of mind to live life to the fullest with financial security. Homeowners are enabled to live in their homes until another living option is a better choice.

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A reverse mortgage is not based on your credit. A reverse mortgage can be obtained by anyone who meets the guidelines set forth by the government, regardless of their credit situation. To receive a reverse mortgage you must be at least 62 years of age. You must have a very low mortgage on your home or the home is completely paid off. You must have sufficient equity available in the home. The home must be your main residence and be occupied by the borrower on a full time basis.

Does applying for a reverse mortgage require a good credit score?

When you apply for a reverse mortgage you will not be asked your credit score nor will you be required to have a credit check. The loan is based solely on the equity in your home. The home itself is used as collateral for the loan so your credit history is not taken into consideration. However, delinquent taxes can prevent you from getting a reverse mortgage. If you have past due taxes or tax liens against your house, these must be satisfied prior to receiving any money from a reverse mortgage.

Are reverse mortgages credit based?

A reverse mortgage is not granted on basis of credit standing. Since this type of loan is a collateralized loan, anyone who meets the requirements can apply for, and receive, a reverse mortgage. Reverse mortgage amounts are based on the amount of equity available in your home. The type of payments you receive is based on your current age and your life expectancy. Once all requirements of age, residence and equity are met, the borrower can process a reverse mortgage regardless of credit history.

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Loans that were known as Proprietary Reverse Mortgages or Jumbo Reverse Mortgages were made available by financial institutions to allow homeowners of very expensive properties to get more money from their properties’ equity than was given by government insured HECM Reverse Mortgages. These reverse mortgages were for properties over $650,000.

Why are Jumbo Reverse Mortgages No Longer Available?

The world wide recession and banking failures has produced what is being described as a “credit crunch”. Basically, a credit crunch means that there is less money available for loans. Jumbo Reverse Mortgages are seen as extremely risky because of the financial situation. Banks are no longer willing to loan monies in excess of $400,000 in reverse mortgages since the future of the property and the banking institution is not clear. Banks could easily lose a great deal of money if they loaned $1,000,000 on a reverse mortgage, waited 20 years and the property was not marketable in the current economy at $800,000.

What factors are involved in making Jumbo Mortgages Risky?

Non Jumbo Reverse Mortgages are insured by the Federal government and are controlled by HUD. Jumbo Reverse Mortgages were not backed by the government. Financial institutions have dropped loaning money on home equities that are not government backed because house values are at an increased likelihood of declining. If the equity in the house can’t be guaranteed by market prices, Jumbo Mortgages increase the bank’s risk at losing money on a reverse mortgage.

What programs have replaced the Jumbo Reverse Mortgage?

Reverse Mortgages were set up for lower and middle class people to access the equity in their property by getting a HUD managed reverse mortgage. People with very expensive properties can still get home equity loans from their banks but these loans are not reverse mortgage loans, of course.

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The retirement years can often be a time of high stress when it comes to finances. Many times, seniors must live on a fraction of their working income, while the cost of living keeps rising. The reverse mortgage was created for those who are 62 years or older who want to use the equity in their homes for extra income. There are benefits and drawbacks to taking out a reverse mortgage, and seeking qualified counseling before you take the plunge is important.

Counseling As A Means Of Education

Before making a life altering decision we often seek the advice of our family, friends and other business professionals who can help us make informed choices. We educate ourselves by reading books, brochures, and other written information that may be available on the subject or product. A reverse mortgage is no different. HUD or The Department of Housing and Urban Development has made it mandatory that all seniors who wish to take out a reverse mortgage undergo counseling with a qualified HECM (Home Equity Conversion Mortgage) counselor before the reverse mortgage will be issued. You also must obtain a certificate from the counselor as proof that you have undergone this process before you can even apply for the reverse mortgage.

Gaining Perspective

It is important to get the right information into your hands before you take out a reverse mortgage. Mandatory counseling ensures that you are given proper information so that you are less likely to become a victim of fraudulent activity, or that you are not being coerced by a family member into doing something you don’t want to do. A qualified counselor will take you by the hand and walk you through the entire reverse mortgage process and help you to understand the pros and cons. Make sure that you contact your local HUD office to get a list of qualified counselors and mortgage lenders.

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Reverse Mortgage Expenses

Closing costs on a reverse mortgage are comparable with the expenses of a traditional mortgage. Senior homeowners pursuing a reverse mortgage should compare lenders to ensure that they receive the best interest rates and lowest service fees available. Typically these charges may be included in the reverse mortgage that eliminates the need for any upfront fees paid by the homeowners.

Reverse Mortgage Checklist

Interested senior property owners may review reverse mortgage guidelines through the convenience of online sources. Many local and online lenders offer this type of mortgage, and a checklist for prequalifying can be gained in a few minutes at various lending sites. The minimum age of 62 is the first requirement senior homeowners must meet. Credit and income verifications are not an expectation with this type of mortgage. The home’s value will be assessed in order to calculate the amount of equity needed to reverse the current mortgage. An approved type of reverse mortgage property may include a single family home, condominium, 1-4 unit structure, and some mobile or manufactured homes. The property’s routine maintenance, taxes, and insurance will remain the property owners’ responsibility.

Reverse Mortgage Advantages

A reverse mortgage can eliminate the worry of not having enough money to live comfortably while being retired. The funds received from a reverse mortgage can be paid to the homeowners’ through monthly payments, a line of credit, or one lump sum amount. Many seniors pay off debt or pay for home improvements that are needed. This type of mortgage enables individuals to live comfortably in their own homes until they make the decision to choose a different type of senior living arrangement.

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