Advantages And Disadvantages Of a Reverse Mortgage

Advantages And Disadvantages Of a Reverse Mortgage On Private Property :

       What are advantages and disadvantages of a reverse mortgage on private property? Senior citizens, with no steady means of income, but who own private property, can now apply for Reverse Mortgage loans to meet sudden and unexpected expenses. Reverse mortgage is a federally insured private loan that has been created by the U.S. Department of Housing and Urban Development (HUD) for providing senior citizens with better financial security. Through this type of loan, senior citizens can convert a portion of their home equity into cash while retaining the ownership of the house. It allows a borrower to receive cash either as single payment, regular monthly cash advances, credit line account or as a combination of monthly cash advances and credit line account, which ever suits the needs of the borrower.

        Apart from the age of the borrower, the only other criterion for sanction of this kind of loan is the value of the property and the interest rates. The most striking feature about the reverse mortgage loan is that the borrower need not have a steady source of income. Even his credit history is not verified prior to loan approval. However, the only condition for approval of such loans is that before availing a reverse mortgage, the borrower must have cleared off all his previous debts.

        Reverse mortgage loans are very convenient from the borrower’s point of view in the sense that it allows him to meet unexpected medical expenses, paying for property taxes and homeowner insurance and also to pay for home repairs. Reverse mortgage loans have a lot of merits -- they are non-taxable loans that do not require the borrower to pay back the borrowed amount as long as he keeps on living on the property used to get a reverse mortgage. Since there are no monthly repayments involved in reverse mortgage loans as compared to forward mortgage loans, these loans are often referred to as “rising debt and falling equity”. The biggest downside of these loans is the high upfront costs. The loan is cleared off once the borrower dies, or when he sells the property or permanently vacates the property or files for bankruptcy.