Senior homeowners have been taking advantage of reverse loans more and more over the years. Reverse loans, or reverse mortgages involves a loan against the equity of the homeowner, that is paid unto that owner via cash. Ideally, the borrower would typically use the funds as another means of income aside from perhaps social security benefits. Home repairs, maintenance and utility bills are also reasons one may obtain a reverse mortgage. To qualify for a reverse mortgage, the candidate must be at least 62 years old and must take a class that certifies them as being prepared to manage the loan. As the loan is very lenient, it can have damaging results to one’s home equity.
Benefits Of A Reverse Mortgage
Reverse mortgages do not have to be paid back immediately. If the homeowner chooses not to move, then the loan remains deferred. Reverse mortgages also have a much lower interest rate than a home equity loan making repayment less stressful. The borrower also need not have excellent credit nor stable income to qualify for the program. The main responsibility of the homeowner is to keep up with the insurance payments and taxes on the home.
Downside To Obtaining A Reverse Mortgage
While reverse mortgages come with a lower interest rate, it also comes with higher upfront costs. These costs, mainly from fees, can be well into the 10′s of thousands for starting out. Also, the interest-which is paid to the homeowner as equity in the form of cash, is compounded for the life of the term. The equity in the home can be exhausted much faster than a traditional mortgage as well. Making the house virtually worthless to the homeowner upon selling the house.
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