The Advantages or Benefits of Reverse Mortgage: Ten To Ponder

For those aged 62 and older, turning to a reverse mortgage can be a great idea that not only allows you to keep independence but also to get the extra cash you need for whatever purpose. By borrowing against the equity that has built up in your home, you can be left with a comfortable amount of money to live on and meet your budget. If you’re looking into the benefits of a reverse mortgage plan here are some of the advantages.

General Advantages of a Reverse Mortgage

• With a reverse mortgage, you don’t start paying back the loan until there is a change in residency, which only occurs if you choose to sell the home, move out permanently or die. That means you eliminate monthly home payments.
• Your house remains your property, but unlike taking out a regular mortgage your home cannot be foreclosed upon, since there are no monthly payments for you to fall back on.
• No income qualifications means that regardless of your current income levels, if you are over age 62 and own your home, you can qualify for a reverse mortgage.
• You stay independent since you can use the money to pay hospital and living expenses, cover debts or add to your savings account. Your money isn’t dependent on others so you relive unnecessary stress.
• Though a reverse mortgage can be more costly upfront, a major benefit to consider is the money is tax free.
• Maintain your standard of living even when on a fixed income with a reverse mortgage
• You have flexible options for how you choose to receive the money. Get a lump sum to make major purchases, use a line of credit or go with monthly or installment payments to keep cash coming in throughout the year.

Judging Reverse Mortgage Benefits by Plan Type

Several sources to choose from when getting a reverse mortgage allows you to measure the benefits of each. With a Home Equity Conversion Mortgage , or HECM, you are likely to get the most cash and have access to a credit line. Public sector loans allow you to take out a loan for a specific reason such as repairs and provide better interest fees than other reverse mortgage loans. Private sector loans can cover the most expensive homes.

A Home Equity Conversion Mortgage (HECM)

Free expert advice and counseling is one of the major benefits of a reverse mortgage through the federally insured program. An HECM can provide seniors access to free and confidential counseling, and this can help you decide if proceeding with a reverse mortgage is your best option.

HECMs allow you to pick your own interest rate by month or by year. HECMs impose caps on interest rates prevent them from ever going up or down more than 5 percent for those on a an annual rate. If you choose to go with a monthly-adjustable rate, the rate reflects the current marketplace but still has cap of 10 percent in either direction. Both can offer savings but the monthly rate is a bonus to homeowners looking to limit their monthly costs.

With an HECM, you don’t have to worry the mortgage is going to affect your future estate plans. You will never have to pay back more than what your home is worth. If the loan is larger than your current homes value, HECM insurance covers the gap. HECM debts don’t affect your future estate plans and would never have to paid by your heirs.

Public Sector Loans

Some low cost public sector loans allow you to combine an HECM with another loan for more savings. If available, you would be responsible for paying back both loans but the public sector lender has to agree to wait to be paid until after the HECM has received full payment.

Public sector loans may also be called Deferred Payment Loans, and a major advantage for seniors is where you can locate these programs. Offered through local and state governments and some charities, they are funded locally. Contact programs in your areas to determine what is available. Seniors who can get the most advantage from deferred payment loans are those with very low income, depending on the loan type interest may not even be charged.

Deferred payment loans can also benefit those who are looking for a constant interest rate. When interest rates apply, generally they are low and limit the closing costs you have to pay on the loan. Investigate deferred payment loans offering forgiveness on the loan. If you continue to live in your home for a certain period of time, part of the loan or the entire amount may be forgiven.

If you’re a senior living in Connecticut or Montana, your state offers reverse mortgage plans through state housing programs; each has its own benefits and advantages, so contact your state housing plan for specific plan details.

Proprietary Reverse Mortgages

HECMs impose limits on the value of loans they offer based on where your home is located. If your home is worth significantly more, you may want to go with a proprietary reverse mortgage. These mortgages are offered directly from private companies; though they are considered to be more expensive than other reverse mortgage types they also can offer you more money upfront. Several different proprietary reverse mortgages are available, with one national plan and others in specific states.

You can comparison shop for a reverse mortgage using information from lenders approved to offer HECM’s, proprietary mortgages and those offered in the public sector. Thanks to the Federal Truth-in-Lending law, the total annual loan cost of a reverse mortgage has to be presented to you in a single annual rate. This is useful to demonstrate the total cost of a reverse mortgage over time and useful when deciding which loan is most valuable to you.