The Advantages and Disadvantages of a Reverse Mortgage
A reverse mortgage is an excellent option for people seeking to tap into equity in their home instead of pull money out in retirement. When used properly, a reverse mortgage will also add a lot of peace of mind, even by adding extra income for a financially secure retirement. The reverse mortgage is a type of mortgage loan where the lender pays the homeowner a fixed amount each month, either as a lump sum or on a monthly basis. The mortgage amount is based on how much equity you have built up on your home. If you sell your home before the end of the loan term, the lender does not have to pay any of the money. However, if you stay in your home and continue to pay on the loan, you can build equity that can be used for debt consolidation.
There are several advantages to using reverse mortgages. One advantage is tax savings. Because a reverse mortgage loan is paid off at the end of the loan term, the borrower does not have to pay property taxes. Usually, a borrower has to pay these taxes, along with regular payments required under the terms of the original mortgage. This can be a big tax break for many homeowners who have older properties. In addition, since the interest only period is usually less than the initial loan term, it also results in tax savings.
Another advantage is the flexibility of reverse mortgage loans. Many borrowers can live in their current home as long as they want while paying the loan. If they want to move, they simply find a new place to live and pay the loan off.
However, there are some disadvantages as well. One disadvantage is that the interest on a reverse mortgage loan is tax deductible. This means that the lender may have to pay taxes on the loan balance in some situations. This may apply, for example, if the homeowners take out a loan balance against their primary residence. In this situation, the lender will need to provide the appropriate documentation.
Another disadvantage of a reverse mortgage loan is the potential for early payoff. A number of reverse mortgage lenders require a borrower to begin paying back the loan upon purchase of their new home or immediately upon sale of their old home. With this payment option, the borrower is paying off the loan balance on their retirement income. The purpose of the reverse mortgage loan is to provide retirement income, not as an investment fund.
Reverse home equity conversion mortgages, or reverse mortgages as they are sometimes called, may also be referred to as refinancing reverse mortgages, loan-to-value reverse mortgages or home equity conversion mortgages. There are many different terms that are used to describe reverse mortgages; however, the purpose is the same-to provide funds to homeowners for use in living expenses. Usually the amount of the loan will depend on homeowners income and current home value, but in most cases, the lenders will require borrowers to start paying back the loan on the date of purchase or when the property is sold.
The advantage of a reverse mortgage may be that it allows homeowners to convert the remaining amount of their mortgage to cash. For many people, this can provide the funds they need to make home improvements, pay down debts and other debt obligations, while making tax-deductible payments for themselves. When a borrower makes a lump sum payment of cash to the lender, they are converting the outstanding balance of the loan. In addition, there are no restrictions on how the money from the cash-out refinance loan can be used. Borrowers have flexibility in using the funds, so in the case of emergencies they can utilize the cash.
It should be noted that a reverse mortgage loan does not transfer title to the house. It is essentially a loan that allows the homeowner to convert their loan into cash, so they only have the mortgage to pay and the remaining balance of the home is owned by the lender. If a borrower should move, sell the home, or die, then the lender will have complete ownership of the home, but they will continue to pay the loan. A reverse mortgage is a complex subject, and you should consult a knowledgeable attorney if you have more questions.