Before knowing the pros and cons of
reverse-mortgage, let us understand what reverse-mortgage is, and how it is
calculated.
What
is reverse-mortgage?
Reverse mortgage is a type of mortgage in which
homeowners can borrow money against the value their home for which no repayment
of the mortgage (principal or interest) is requisite until and unless the
borrowers want to sell their home or deceases.
After, analyzing the initial mortgage amount,
the rate of interest that accumulates, the period of the loan and rate of value
of the home, the reverse-mortgage is planned so that the loan amount will not be
more than the value of the home during the life of the loan.
Before lending, the lender will check whether
any other liens against the home exist and in case any exists, the borrower
should pay-off from the takings for the reverse mortgage.
The chief benefit of reverse mortgages is not
alike the conventional mortgage payment and this type of mortgage also allows
the borrowers to still own and live in their house.
Pros
of Reverse Mortgage:
Low
threats for nonpayment - In reverse mortgage, there is no option for
payment of loan until the borrower leaves the home (but should pay taxes,
maintenance cost, and insurance on their home) and need to be worried for
taking home away for non-payment, which happens in the home equity loan. If the
borrower stays in a different house for a longer-time than mentioned in the
loan agreement, then the borrower is subject to foreclosure. The
reverse-mortgage lenders will not check about other assets and income of the
borrower.
No
Hitch – While the repayment of reverse mortgage, the borrower will
never pay more than their property value, though if the reverse mortgage lender
has paid more than the value of the house. This is also a beneficial pro, when
the home price drops and the borrower had secured reverse mortgage.
No
Tax – Since, reverse mortgage is a loan; it is generally
tax-free, irrespective of however it is received, either as whole amount or
fixed sum.
No
Constraints – In reverse mortgage, there is no restriction
in how the borrower uses the money or any guidelines that says it should be
used for specific reason.
Flexible
Payment Options – Depending on the type of reverse mortgage the
borrower choose and receives amount in the form of whole amount, fixed sum, credit-line,
or combining some forms of the above together, the borrower can pay
accordingly.
Ownership –
With reverse mortgage, the borrower can retain the ownership and live in the
same house but should pay the insurance, maintenance cost, property taxes and
any such required.
Permanent
Place to live – With reverse mortgage, the borrower can stay
in a house as long as they want and when they safeguard the reverse mortgage.
Cons
of Reverse Mortgage:
Watch out if you (borrower) are entitled for low-income aid – Make sure that your low income assistance is not eliminated from reverse mortgage.
If you are relocating
– Make sure, if you choose for a reverse mortgage you stay in the same house
for long time as you will be subject for foreclosure if you stay in any other
place for longer period as mentioned in loan agreement.
Assess your inheritance and your
heirs – The borrower will have the option to pass the reverse
mortgage to heirs who can keep the home and continue the reverse mortgage or
pay-off and keep the home.
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