Reverse Mortgages With a reverse mortgage you have equity built up into your home. You may even own the house outright. With a reverse mortgage, you are borrowing on that equity and paying interest on it.
The big advantage is that you get a monthly payment coming to you versus you making one to the bank. Most lenders want their money back rather than take ownership of the property and engineer the loan so that when the loan is over, it is repaid along with any cash advances and interest. This is usually done by the sale of the property.
Before you start borrowing any money whether through a loan or mortgage, you clearing understand what you are getting yourself into. Although AARP does not endorse any reverse mortgages including lenders or products but they do want you to be fully informed about them.
AARP states reverse mortgages vary depending mainly on your age and home or property’s value. You are not eligible for one of these mortgages unless you are 62 years of age or older.
The amount of money funds you can get from one of these mortgages will greatly depend on your property’s current appraised value and the interest rate the lender is charging.
It is strongly suggested that you make sure to do a thorough investigation before going ahead with one of these loan programs and consider all your options.
The major disadvantages of reverse mortgages are that they are extremely expensive when compared to traditional loans. Noteable in this loan type, interest is added to the loan principal balance every month so interest owing compounds rapidly.
Disadvantages of reverse mortgages:
- the equity in the home or property can be completely consumed if the individual lives long enough.
- Once the home or property is sold, all proceeds go towards paying back the mortgage which, in all likelihood, leaves nothing to the heirs.
- interest is not tax deductible with this type of mortgage as it is with a traditional mortgage.
- Reverse mortgages lenders seem to charge huge fees that can be front or back end loaded or both,
- These charges can be extremely costly to the person taking out the mortgage.
- Speak to a lawyer before signing anything. Contract terms and conditions are also quite complicated so be sure to
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