Advantages and Disadvantages Of A Reverse MortgageBetty and John, are in their mid-seventies and are currently weighing
advantages and disadvantages of a reverse mortgage as a way of freeing up some cash. The couple purchased their home 45 years ago for about $14,000 since then home values have skyrocketed and recent single family homes in their neighborhood have been selling for a minimum of $160,000.
Like Betty and John, if you’re considering a reverse mortgage it’s important to do some research prior to making a decision. You not only need to understand
basic principles of this kind of mortgage but you also need to look at all
advantages and disadvantages of a reverse mortgage.
Essentially a reverse mortgage is a loan that permits homeowners 62 years of age and older to borrow against
equity in their homes without having to sell it. Further, you don’t have to give up
title or take on a new monthly mortgage payment.
A reverse mortgage loan is tax-free and needs only to be repaid when
borrower (or in
case of Betty and John, when
surviving spouse) dies or sells
home. At which time,
reverse mortgage loan must be repaid in full, including all interest and other charges.
When examining
advantages and disadvantages of a reverse mortgage it’s also important to consider both
process and
related costs of obtaining a reverse mortgage. Unlike a conventional mortgage, with a reverse mortgage,
homeowner (the potential borrower) must meet with a reverse mortgage counselor. References for counselors can be obtained from banks offering reverse mortgages or
U.S. Department of Housing and Urban Development (HUD).
The purpose of these meetings which may take place in person or on
telephone is for
homeowner to learn about reverse mortgages and discuss alternative options. It also helps you decide which kind of reverse mortgage may be best. As well as exploring
advantages and disadvantages of a reverse mortgage, it’s wise that
potential borrower, also compare costs between various lenders and request a Total Annual Loan Cost estimate for each.