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.
A reverse mortgage is actually backed by the federal government even though it is officially a private loan. With this, the homeowner’s equity is used for a variety of things. Keep in mind that when answering the question of what is a reverse mortgage and is it a good choice, some restrictions apply. For instance, this type of mortgage is one available to the elderly with the funds being used at the discretion of the homeowner.
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 to determine the reverse mortgage rates, and monthly payments in making the final decision on approval.
Although many people do not find value of what is in a reverse mortgage when going through the required counseling provided by HUD, this is actually highly beneficial. During this counseling session, the homeowner has the opportunity to ask questions and get help in making appropriate decisions. Once this process is complete and the other qualifications have been met, the application process can begin.
Of course, while there are many incredible value factors for what is a reverse mortgage, gaining knowledge about the good and bad is what will ultimately help the homeowner move in the right direction. As you will see below, consider the good and bad sides to a reverse mortgage prior to making your final decision.
Positive Aspects
One of the primary benefits linked to a reverse mortgage is that the homeowner is allowed to use the home’s equity for numerous things. For example, the money could be used to travel, make updates on the home, and pay off medical bills, or send a grandchild to college, and so on. However, in trying to manage bills during later years, many homeowners use reverse mortgage funds to supplement a retirement account, savings, or Social Security income.
Another advantage of a reverse mortgage is that all the money being taken out against the equity is completely tax free and, there are zero restrictions on income. This means if the homeowner is bringing in only a small amount of money each month on which to live, or has no income at all, he or she would still qualify to use money from the equity.
Until the time comes when the homeowner moves, sells the property, or passes away, not having to have pay the money back is a huge blessing. Now, if there were family members in the homeowner’s will, once the homeowner passes away, the reverse mortgage could be refinanced. The key here is that with several variations for this type of mortgage, anyone interested needs to consider all options before signing on the dotted line
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 to the reverse mortgage providers. 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 there is a positive side to the question what is a reverse mortgage and is it a good choice, there is also a negative side. For instance, interest on this type of loan is variable so the payment on a reverse mortgage opposed to a more traditional loan would be higher. Additionally, the fees that go along with a reverse mortgage are also higher such as closing costs, application processing fees, insurance, appraisal, and so on.
Then, along with the value of what is a reverse mortgage, consider that for the application to be approved and the funding to become available, the house has to be in good order. This means the structure itself has to be sound and there should be no serious repairs. Even with this, there is a good note in that if the homeowner were faced with problems of repair, most lenders of a reverse mortgage would simply add the cost into the principal of the loan.
The question of what is a reverse mortgage and is it a good choice is very important. With a ton of information to decipher, doing your homework and talking to a professional from HUD will help guide you in the right direction.
