Reverse mortgages have pros and cons. Read on to find out what they are.
A reverse mortgage is when a bank or lender pays money in order to purchase equity in a home. With a reverse mortgage the mortgage company purchases a selected amount of equity in your home.
More on Reverse Mortgages
You are allowed to stay in your home while the mortgage company collects the loan with interest that is given at a later time. This is just the opposite of what happens when you buy a home. When you buy a home, you are able to live in your home and purchase the equity from the lender.
Simply Put..
In simpler terms, a reverse mortgage is a different kind of loan in that you, the home owner, are allowed to convert the equity of your home into cash. You must be 62 in order to participate in a reverse mortgage. A reverse mortgage helps those at this age and older to convert some of the equity in their home into tax-free cash without selling their home, giving up their title, or agreeing to a new monthly mortgage payment. Instead of making monthly payments to a lender, a lender will make payments to you.
Check Out the Facts
Are Reverse Mortgages Risky? Let’s look at the facts. There are certain things you need to be aware of before contemplating a reverse mortgage. Let’s look at a few critical areas. Reverse mortgage loans are not taxed and in most cases will not affect your Social Security or Medicare benefits. With a reverse mortgage, you will be also be able to keep the title to your home and you will not have to make monthly repayments. However, the loan must be repaid when one of three things happen: the last surviving borrower dies, no longer lives in the home or sells the home.
More Facts on Reverse Mortgages
Still wondering if reverse mortgages are risky? Let’s look at more facts. Most lenders will charge you an origination fee and other closing costs for a reverse mortgage. Also, the amount you owe on a reverse mortgage will continue to grow. Interest is charged on the outstanding balance which means your total debt will increase as the loan funds are given to you and the interest on the loan will increase. And, some reverse mortgages have changeable rates which means they will probably alter according to market conditions.
Reverse mortgages can also use up most or all of the equity in your home and leave few assets for you and your family. Also, because you retain the title to your home, you will be responsible for insurance, utilities, property taxes, eminence, fuel and all other expenses. If you choose not to pay your property taxes, continue to have homeowner’s insurance or take care of your home, your loan may become due and payable. So, it is important to follow the rules and guidelines set up by the lender.
Also Keep This in Mind..
So, to get a good deal, and to calm your nerves and to answer the question: are reverse mortgages risky, shop around and compare the options and values available and what the different lenders are offering. Also be careful of sales pitches, understand that you have a right to cancel if you feel that you’re being offered a deal that is shady, and report fraud to the Federal Trade Commission if you sense any illegal actions. This can be done online or by phone.
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