The Advantages And Disadvantages Of A Reverse Mortgage

By Author: Issac Gates
Total Articles: 186
Comment this article

The concept of reverse mortgage may appear a little bit complex to the common man. It is in a way a lot different from the usual mortgaging concept. Reverse mortgages are loans against your home equity. The term “reverse” is attached to it because the flow of the money here goes in an opposite direction. The lender in such kind of mortgage offers you monthly installments, or a considerable amount based on various factors involving the valuation of your home.

The biggest advantage of this concept is that you get instant hard money at the time when you need it the most. However, there are some eligibility criteria for qualifying for this mortgage. You need to be a minimum of 62 years old before applying for this mortgage scheme. And in case you are a married person, then your spouse must also have to be 62 years old or more. There’s no restriction as far as the income is concerned, but you have to be the sole owner of the property in order to qualify for the reverse mortgage.

Now once you qualify for the home equity, the question that arises is how much you are entitled to get for your property? ...
... This is the most important consideration before embarking on any financial plan. In case of home equity, this amount depends on your property value and age. If you are in the age bracket of seventy to seventy five or more, you are entitled to get more return on your property. Remember, the more the age, the better is the return in case of home equity. Usually, you have a borrowing limit of fifty to sixty percent of the property value, but the actual amount depends on the ratio of your age and the property value taken together. The result from this equation ultimately determines the final amount.

The hard money obtained from the reverse mortgage can be in the form of monthly installments or as a single principal amount. However, it is always better to collect money in the form of monthly installments, in order to receive a healthy accrued interest. The mortgage amount under this scheme gets repaid at the time when you decide to move out from your house or at the time of your death, when your children or grandchildren become the beneficiary.

Though the concept of living in your house under this mortgage scheme may give you a sense of relief, the truth is it still remains as a loan, and you cannot run away from it. Moreover, you must not withdraw the funds as per your wish; it may reduce the valuation of your property. This is a big disadvantage. Reverse mortgages also do not work if you make a plan to live for a period of less than 7 years in your house. Therefore, a home equity may answer a lot of your problems, but if you do not take into account all the factors, you may put yourself into serious trouble.