Reverse mortgages- more disadvantageous than beneficial!

Personal Finance

Reverse mortgages seem to impress people as there is a consistent source of income at one’s old age. However, the disadvantages in the offer should be studied well before deciding whether to access this offer or not. Let us first understand how the reverse mortgage functions to know whether it can be beneficial or not. Reverse mortgage is also termed as conversion mortgage. The mortgage is opposite to conventional mortgage and hence the term reverse mortgage. In this offer, the mortgage is paid by the lender at prlog to the homeowner, instead of the homebuyer repaying towards the mortgage for the home purchased.

How does the reverse mortgage function?

To put it simply, the homeowner obtains loan on the home and the lender gets the loan amount along with the interest once the property is disposed at the demise of the homeowner. The homeowners who lack sufficient funds for regular financial commitments can solve their financial problem with the support of reverse mortgages. The borrower of reverse mortgages is expected to be aged 62 years at least and must have settled a major portion of the home mortgage. Neither the income nor the medical history of the applicants is required for this mortgage.

In certain cases, the borrower needs to undergo counseling before taking the offer. The age of the applicant, the equity of the applicant on the home, and the market value of the property are the factors that determine the loan amount. The reverse mortgages are offered by both the private financial institutions and the government agencies. The loan amount is paid either fully or in regular monthly installments or through line of credit. The homeowner who applies for reverse mortgage can choose either one of the options of payment or can avail a combination of the options.

Though the offer gives financial freedom to the homeowners, the disadvantages in the offer should be considered as well before committing to it as there is the risk for your property. Since there are various options in the offer of reverse mortgages, counseling will be helpful in the decision. The process of reverse mortgages involves high cost. The application cost, the closing cost, the cost due to appraisal, credit report charges and expenses due to insurance and service charges are involved in the offer. Though the homeowner can enjoy the comfort of residing in own house, property taxes, the insurance and the repair charges are to be undertaken by the homeowner.

In case the homeowner is not regular in his payments towards these costs, there are chances that the loan might be revoked and the homeowner might become responsible for the entire loan amount. However, the homeowner can apply for rolling the expenses due to the above mentioned factors into the loan amount. The financial support that is availed through reverse mortgage is exempted from taxation. You are denied the benefits from SSI and so on due to this. The interest amount on reverse mortgages is not exempted from tax until the loan is settled completely. Analyzing the advantages and disadvantages, you should consider the option only if you are utterly in need of financial support for survival.

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