Jim Fink

Reverse Mortgages Are Strong in a Declining Economy

Amidst recent news that people are having trouble finding mortgages, many seniors have become concerned about the market for reverse mortgages. Unlike the forward mortgage market, the reverse mortgage market is still strong and funds are still available.

Reverse Mortgages in the Credit Market
Unlike forward mortgages, which entail a higher risk on the part of the lender, reverse mortgage funds are backed by a property you already own and have built equity in. Reverse mortgages don’t carry the same risk of default as a forward mortgage, and therefore lenders are still willing to make funds available. They also carry less risk than a home equity loan because the borrower isn’t required to make monthly payments.

Reverse mortgages also differ from forward mortgages when it comes to your credit score. Because the loan is based on your age, the current value of your home, and the amount of equity you have in your home, your income and credit score are not factored into the loan. Lenders won’t issue a reverse mortgage for the full current value of the home or the current value of the equity. Instead they typically limit the loan to a maximum of 70% of the current value or equity.

Reverse Mortgages Are Safe Loans
Contrary to a popular fear, a reverse mortgage lender can’t take your home once the funds run out. Although it is possible to outlive the loan – the distribution of funds is based on actuarial tables and your age at the time the loan is issued – you can stay in the home after the loan term concludes.

As long as you maintain the upkeep and insurance on the home, you may stay in the home as long as your health permits. The loan is only due for repayment when you permanently leave the home, at which point you or your heirs may allow the lender to sell the home or choose to repay the loan from other funds. If the home sells for more than the loan balance, you or your heirs are entitled to the excess.

In addition, reverse mortgages don’t affect your taxable income because loan proceeds are not generally taxable.

With the economy declining, more and more seniors are opting for reverse mortgages that allow them to take advantage of their home equity without owing monthly payments. If you’re considering such a loan, contact your financial adviser or a reputable reverse mortgage lender like Financial Freedom to discuss all of the options available to you.

Article Tags: Reverse Mortgages, Reverse Mortgage, Current Value

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