The United States Department of Housing and Urban Development, more commonly referred to as HUD, has long been the leader when it comes to the home mortgage. Over time, we have watched the world of mortgage grow and evolve. One option that people need to educate themselves on has to do with the real value of what is reverse mortgage.
In answer to “what is reverse mortgage”, this is actually a private type of loan but one that is insured by the federal government. What makes a reverse mortgage unique is that a portion of the equity in the home is converted to cash, which can then be used by the homeowner in whatever way they see fit. Because qualifications and restrictions are associated with a reverse mortgage, it is used by the elderly, many times as a means of financial security.
One of the main values when it comes to what is a reverse mortgage is that the homeowner’s income is not checked or even considered. This means the person could have very little or even no income and still qualify for a reverse mortgage loan. Of course, as with any mortgage, there are various dynamics that are looked at by the lender in making the final decision on approval.
In answer to what is a reverse mortgage and is it a good choice, there are other things that come into play. As far as how the money is distributed to the homeowner, there are three options to include taking a lump sum, getting a specified monthly check, having a line of credit, or the homeowner can mix and match the choices. Keep in mind that paying back on this type of mortgage does not take place unless the homeowner moves, sells the home, or should die.
As mentioned, the primary value of what is a reverse mortgage is that funds are taken out of the equity and then paid out to the homeowner in the way of a monthly payment, one lump sum, as a line of credit, or the homeowner can use any combination. Best of all, after the funds have been distributed, it is the homeowner’s discretion to spend it in any way seen fit. As far as paying the loan back, this does not occur until one of three things happens – the homeowner sells the home, moves, or passes away.
Positive Aspects
The first value of what is a reverse mortgage is about having the freedom to spend the money as wanted. Some people have worked hard a lifetime and now in the “golden years” want to travel the world to enjoy the fruits of their labor. However, these funds can also come in handy in the case of paying bills or doing major repairs on the home.
However, one of the huge benefits of a reverse mortgage is that for many elderly living on a limited income from savings, pension, or Social Security, these funds can help supplement, making day to day living more manageable. Then, with the money being non-taxable and with no income restrictions, it is definitely a consideration for a lot of people.
Another area of value pertaining to what is a reverse mortgage is that instead of scrimping every month, barely getting by on money saved up, a pension, or perhaps Social Security or Disability, the money is a great supplemental income. Considering that any funds taken out of the equity for a reverse mortgage is not taxable, adding another benefit on top of the others.
As long as the homeowner owns and lives in the home, no money on the mortgage loan is paid back. However, as mentioned if the person moves, sells, or should pass away, then the reverse mortgage would then start to be repaid. In the case of having heirs, anyone thinking about this type of mortgage needs to have a full understanding of all the options and factors since there are a number of variations.
Disadvantages
As you can see from the information provided above, there is tremendous value associated with what is a reverse mortgage. Unfortunately, there are also some downsides to this type of loan that should be reviewed. First, there are fees associated with any loan such as application fee, appraisal, insurance, closing, etc. However, in the case of a reverse mortgage, the fees are typically higher and in fact, there are some lenders that will also tack on a service fee of some kind.
The final aspect that goes with the question of what is a reverse mortgage and is it a good choice has to do with the condition of the home, which could make or break the deal. Lenders want to see sound construction and the home in good repair. The positive side of this is that if repairs are needed to complete the reverse mortgage process, then any costs could simply be rolled into the mortgage.
For many people, the value of what is a reverse mortgage far outweighs any potential risks. While this can be an excellent option, anyone going this route needs to have a clear and full picture of what is expected. That way, as time goes on, there are no unpleasant surprises. Remember, the staff at HUD is always available to help in any way possible so take advantage of their service.
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