Considering A Reverse Mortgage Loan?
3/26/2009By: Leslie Paier Aceto
Have you ever considered whether or not a reverse mortgage loan secured by your home is appropriate for you?
Not all homeowners can take advantage of this type of loan. The preliminary eligibility requirements are:
Assuming the above criteria are satisfied, then it is time to consider the pros and cons of a reverse mortgage.
Some of the benefits of a reverse mortgage are as follows: A reverse mortgage loan is a vehicle which converts a portion of the illiquid equity in your home into liquid cash that can be used for any purpose, including supplementing your regular monthly income, completing home improvements or repairs, debt consolidation or family gifting. In short, there are no restrictions on what the borrower can do with the loan proceeds. There are no credit or income requirements to qualify for because the loan is based on the equity in your dwelling. Since it is a loan, the loan proceeds are tax-free. Unlike other types of home loans, there are no monthly mortgage payments. Loan repayment is deferred until the house is sold, the borrower vacates for twelve or more consecutive months or upon the death of the surviving borrower. There is no personal liability to the borrower(s), his estate, heirs, or beneficiaries; the liability is limited to the value of the property at the time of sale. There is flexibility in the manner by which the loan proceeds are paid out to the borrower.
On the other hand, the negative aspects of a reverse mortgage include: the closing costs tend to be higher than those costs charged for other types of loans (however, please note that as a result of the Housing & Economic Recovery Act of 2008 closing costs have been reduced and certain fees capped). The documentation is complex and therefore, counseling for the borrower is a requirement prior to the loan closing. The risk of fluctuation in the interest rate can reduce the remaining value available for the borrower’s heirs after the loan is repaid.
Assuming you conclude that the benefits of a reverse mortgage loan outweigh the negatives, your next question may be how much can I borrow? The loan amount is determined (and limited) by consideration of the following factors: the appraised value of the home or the maximum lending limit, the age of the borrower(s), current interest rates and the amount of equity that has built up in the home.
As mentioned above, there is flexibility in the manner by which the loan proceeds are paid at closing. The borrower can elect from a variety of disbursement options, including:
Careful consideration should be made before deciding to proceed with a reverse mortgage; however, if you meet the criteria, plan on staying in your home for several years such that the closing costs are justified and you could benefit from being able to cash-out a portion of the equity that has built up in your home to supplement your income, this type of loan may be for you.
Do not hesitate to contact me if you have any questions or would like to learn more about reverse mortgages. My email address is: laceto@znclaw.com