What is a reverse mortgage? The word reverse means backward; in a way of speaking, it’s an upside-down mortgage. Most mortgages involve putting in regular payments for an unpaid house, where as a reverse mortgage allows the equity of your home to start paying you back. In essence, you would have no mortgage payment due every month. This loan can be used to refinance your existing mortgage or you may be able to us reverse mortgage purchase loan to move into a new home.
Here we’ll look at some reverse mortgage guidelines and reverse mortgage pros and cons. A reverse mortgage purchase may be for you, but before you get involved in one you also should know exactly what the reverse mortgage disadvantages are.
Reverse mortgages in the United States are only available to those over the age of 62. Other reverse mortgage guidelines include restrictions on the property mortgaged: it must be eligible under FHA guidelines, and the value of the mortgage must be less than the value of the property. That is to say; the mortgage is limited by the amount that can be paid off by sale of the house.
On the pro side, reverse mortgages offer homeowners with little or no income a way to receive a regular stipend—enough to live on, in many cases—without going through the trouble and upheaval of selling their homes. A paid-off home is no good to someone who is passed away. A reverse mortgage allows someone to use the equity that they built to start repaying them while they live out their golden years having the comfort of staying in their home.
However, a reverse mortgage is still that—a mortgage. Many families worked hard to pay off their homes, with the dream that this building, this plot of land, would be something all their own, something they could pass down to their children and grandchildren. They take out a reverse mortgage with the understanding that it is a simple loan. But often they do not realize that the interest on this ‘little loan’ is ballooning, and if or when they do pass on, an enormous amount of the equity in the house maybe eaten up. With that said, their heirs do have the opportunity to keep the home if they choose as long as they can qualify for a new mortgage.
One problem is that those who meet the reverse mortgage guidelines and requirements are not always the ones who can best understand them. Even worse, this is a group of people who is very easily taken advantage of.
Many seniors take out a reverse mortgage without having much understanding, never having the details fully explained, never knowing the actual pros and cons. Surveys have shown that only about 46% percent of those who take out a reverse mortgage understands much about them. This is obviously a problematic situation. Before making the decision to proceed with a reverse mortgage, make sure you speak with someone will also be willing explain what are the reverse mortgage disadvantages. This type of mortgage may greatly improve your quality of life, but make sure you understand what you are doing before you sign!