Skip to main content

What is Reverse Mortgage | How does it Work | Pros and Cons



What is Reverse Mortgage


A reverse mortgage could be an excellent way to supplement your retirement income. Let us first understand how the reverse mortgage works. First, think of how your home mortgage works as you make monthly payments, the amount of equity in your home increases. This equity is the money that is tied o the value of your home.

A reverse mortgage allows you to borrow that money in payments made back to you. As you receive cash payments, the equity in your home decreases gradually. Also, the loan balance slowly increases over time.

The reverse mortgage is repaid if the homeowners or the borrowers leave the house. A reverse mortgage allows you to access the cash in your home while you still live in it.

How Does Reverse Mortgage Work (Rules)


There are some rules for reverse mortgages. The borrowers must be at least 62 years old. The property in question must be your primary residence. You must own your home and have substantial equity in your home. 

You must have enough resources to keep up with the property taxes, insurance, and home owner’s insurance fees. Many other rules also apply, make sure you understand them from your trusted mortgage advisor before you apply for a reverse mortgage.

Pros of Reverse Mortgage


The most pros of reverse mortgage is that you never have to make a payment. To qualify for the reverse mortgage, you do not need to have a good credit score. You would have access to your home equity without leaving home.

You would be able to acquire that cash without selling the house. Doing so, you can add to your monthly income. If you decide to take a line of credit while getting a reverse mortgage, it grows over time.

The line of credit grows equal to the loan rate, plus 1.25%. Over time you would have access to much more money. If you never have an emergency and do not need to take the money from the line of credit, then you haven’t borrowed those funds. And your heirs have a much lower balance to pay off when they inherit your home.

Cons of Reverse Mortgage


The biggest cons of reverse mortgage is that it is expensive. The closing cost on a reverse mortgage could be more than that on a traditional mortgage. So you must compare mortgage lenders and fees for best deals. You can disinherit your children from getting that home

Even if your heirs are inheriting the house, it comes with a lien which needs to be paid in full within six months. The balance on a reverse mortgage increases over time. You will owe more on the mortgage in 10 years than you do after the first year.

Refinance a Reverse Mortgage


A lot of people do not know that they can refinance their existing reverse mortgage. The most crucial reason for refinance reverse mortgage is that you might end up getting more money. When you get a reverse mortgage what it does is, it calculates how much you can borrow based upon your age and it multiplies by the appraised value of the house.

If you already have a reverse mortgage for a few years and now the current value of the home is appraised, you can always get the existing reverse mortgage refinanced and get more money.

It makes a perfect sense to refinance a reverse mortgage because if you don’t borrow that money, it will end up going away anyway.

Since the reverse mortgage appreciation works on the principal balance, it is better to refinance your reverse mortgage. Take that extra money in the form of cash or line of credit. It might be challenging to qualify for the reverse mortgage refinance as the parameters are too stringent.

However, you can always talk to your trusted mortgage advisor and see the numbers if the work in your favor.

Conclusion


Getting a reverse mortgage and refinancing it could be one of the most crucial decisions you might have to take. We always suggest you seek advice from your trusted mortgage advisor who can guide better in your situation.

Since refinancing on reverse mortgage comes with quite a challenge, you need to be assertive whether or not you need to get it done. Eventually, every penny saved is a penny earned.

Labels:
838 E 27th St, Houston, TX 77009, USA

Comments

Post a Comment

Popular posts from this blog

What is an Appraisal Contingency? — Best Guide for Homebuyers

  About Appraisal Contingency If a home is appraised for less than the purchase price included in the contract then there is a provision that is included in the purchase contract allowing homebuyers to back out of their contract this is termed as an  appraisal contingency  clause. Buyers who use financing to buy a house or are  buying homes  in areas where prices are volatile commonly use Appraisal contingencies. How do Appraisal Contingencies work? Purchase offers have appraisal contingencies inserted into them to notify the seller that the buyer intends to have the property appraised as part of their purchase for the financing process. If th e  property doesn’t appraise for the amount the buyer offered to pay then this contingency allows them the option of backing out of the contract without losing their earnest money deposit or facing other penalties. During an appraisal, a licensed professional is hired by the homebuyer to examine the property and evalu...
Post a Comment
Read more

Public Feedback Requested By CFPB

  The Home Mortgage Disclosure Act underwent certain changes and to evaluate whether it is meeting the stated goals of detecting discrimination in mortgage lending the  Consumer Financial Protection Bureau  is seeking comments. The CFPB requests for assessment of the mortgage disclosure law and checks if it meets the objectives of the  Dodd-Frank Act . To abolish discrimination in mortgage lending in 1975 the Congress enacted . The bureau said the request comes after an August report found that mortgage lenders as compared to white applicants were charging higher interest rates and denying credit to Black and Hispanic applicants. The   bureau said that with this evaluation the CFPB will be able to maintain a fair, competitive, and non-discriminatory mortgage market. They added that the assessment is an opportunity for the Bureau to get an idea if the earlier HMDA rulemakings have improved upon the data collected, thereby reducing loans on financial institutions,...
Post a Comment
Read more

What is Fannie Mae and Freddie Mac?

Understanding  Fannie Mae  And  Freddie Mac What is Fannie Mae and Freddie Mac? Fannie Mae or FNMA  is a nickname for Federal National Mortgage Association. It was established in 1938. It is a Government-sponsored Enterprise (GSE). In 1968, Fannie Mae ceased to exist as a government entity and became quasi-governmental, federally charted corporation to buy mortgages other than those insured by the Federal Housing Administration, otherwise known as FHA. Freddie Mac or FHLMC  is a nickname for Federal Home Loan Mortgage Corporation. Freddie Mac is also a government-sponsored enterprise (GSE) which was brought into existence in the year 1970 by the Congress. It provides competition to Fannie Mae and provides funds availability in the secondary mortgage market. What is Fannie Mae's and Freddie Mac's Role? Fannie Mae’s purpose is to create a secondary market for the purchase and sale of mortgages.  The secondary mortgage market ...
Post a Comment
Read more

Ultimate Guide About Lease Option With Its Pros And Cons

  About Lease Options When you are looking to buy a home there are a lot of things that a buyer needs to be prepared with like a good credit score, down payment, and commitment to ownership. However, what if you don’t have a  credit score  that could qualify you for a mortgage? Or what if you don’t have enough money for the down payment to  purchase the property ? There is a way you can prepare to buy that home through the lease option. In this post, we will understand what is a lease option and how it works. What Is A Lease Option in Real Estate? A lease option is an agreement or a contract through which a tenant can purchase a property in the future based on today’s market price once the lease ends. A lease with the option to buy also gives the tenant / potential buyer time to build credit and save money for the down payment to buy the property. Once you enter into a lease option, it prevents the seller to accept any future orders from other buyers. A lease option ...
Post a Comment
Read more