Advantages and Disadvantages of Reverse Mortgages

As the term implies, Reverse Mortgages are funds which are released to a home owner based on the equity they have made based on their mortgage payments. In typical mortgages, payments are made on a predetermined amortized payment to the lending entity. Reverse mortgages release these equity built thru years of monthly payments to their homeowners. In this type of loan, homeowners are not obliged to make payments only that when the owner dies all rights are transferred to the lending institution.

Normal 0 false false false MicrosoftInternetExplorer4 st1\:*{behavior:url(#ieooui) } /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin:0cm; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman"; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;}

·       Reverse Mortgages, Pros and Cons

·       Why go for Reverse Mortgages

 

Advantages

 

·       Proceeds are generally tax-free for Reverse Mortgages.

·       Homeowners who outlive their loans could stay in their homes. Senior Americans may find comfort that they are in no danger of leaving their homes even when the equity of their homes is lost or when the loan reaches its maturity rate. However, homeowners are still required to pay taxes and maintain their homes.

·       Elder Americans will be glad to know that Reverse Mortgages don’t affect retirement or healthcare benefits.

·       Entering into a Reverse Mortgage doesn’t mean losing rights to your home. Reverse mortgages are similar to a home sale where you get the equity you have invested in a home but you still maintain the option of paying back your home albeit with an interest rate.

·       When the loan matures or when the borrower dies, surviving members have the option of selling the home and getting the difference left between the homes equity and loan.

 

Disadvantages

 

·       The main disadvantage of having a Reverse Mortgage is that they have generally higher interest rates compared to a mortgage rate for example.

·       Interest payments made on Reverse Mortgages are not tax-deductible.

·       Interest rates are based on the actual value of the home and not the amount of loan made.

·       Homeowners may find it difficult to leave the home to surviving family members as the loan may outgrow the actual market value of the home.

·       Reverse Mortgages are great for releasing equity built thru years of mortgage payments. This is a great source of funds especially for homeowners having financial difficulty. Sadly, this type of loan is only available for the senior Americans and not the general population.

 

 

Article Tags: Reverse Mortgages

Source: Free Articles from ArticlesFactory.com

ABOUT THE AUTHOR