Reverse Loan and Mortgage Benefits

Find out the benefits you can received on a reverse loan.  Determine if this is a good solution or you as well as what you should watch out for when getting one of these loans.

What are reverse mortgages and are they right for you?

Most people at some point in their lives get a traditional mortgage loan in order to purchase a home for themselves and their families. Traditional mortgage loans are when you purchase a home over a specific span of time by making monthly payments to a lender until the home is paid in full at which time you become the official owner of the home. By the time a mortgage loan is paid off the homeowner has often been paying on the property for 30 years and is approaching retirement age. Many senior citizens use the equity in their paid off home in their senior years to pay for other needs they may have by using reverse mortgages.

A reverse mortgage is almost the opposite of a traditional mortgage because the person who owns the home is allowing a lien to be placed on the home by a mortgage company so that they can get money out of the equity of their home without losing the privileges of owning the home. Some of the facts about reverse mortgages include:

• People over the age of 62 who own their home or are close to owning their home can take a reverse mortgage. If you still owe a small amount on your home and want to take a reverse mortgage the lender will most likely require you to use some of the equity you borrow in your reverse mortgage to pay off your current mortgage so that they are the primary lien holder of the property.

• You do not make any payments. The lender is loaning you money on the equity in your home. Once your home is sold then the lender will get paid the amount they loaned you plus the agreed upon interest rate for the period of time that the money was loaned to you. Until the home is sold you make no payments.

• You get to remain in your home until the home is sold. The lender can not sell your home. You get to stay in your home as long as you want and the lender does not get the money from the equity they purchased in your home until the home is sold. This means that you get to live in your home as long as you want without making any payments to the lender.

• You must keep your home in good repair. If there is a problem with the home that needs fixed you must repair it. If you let the condition of the home deteriorate then the lender has the right to call in the loan or force you to sell your home.

• You must pay your property taxes. If you have delinquent property taxes then a lien could be put on your property, and reverse mortgage lenders do not allow your property to go into delinquent status. If you do not pay your property taxes then your lender can call in your loan or force you to sell your home.

• You must live in your home. You can only take a reverse mortgage on the home you own and live in. Once you no longer live in the home then the lender will call in your loan.

• When you take a reverse mortgage on your home you are depleting the equity of your home which means that you have less assets overall for yourself and your heirs.

• The interest on your reverse mortgage is not tax deductible like on a traditional mortgage. Once the loan is paid off or partially paid, then the interest can be deducted, but not until then.

• You are not taxed on money you receive from a reverse mortgage. This money is tax free.

Reverse mortgages can help people, but may not be the option you are looking for. Some people may have other options and it is important to know if a reverse mortgage is right for you. If you need money for:

• Monthly living expenses. A reverse mortgage can be set up where you get monthly checks to supplement a fixed income and help with your day to day living expenses.

• Home Improvements. You can take a specific amount of money out of a reverse mortgage in order to fix a problem you may have with your home.

• Unexpected financial needs. A lump sum reverse mortgage can be taken out on your home where you get a specified amount of money that you can use for anything you want.

The money you get from a reverse mortgage can be distributed monthly, or as a lump sum depending on your specific needs. Make sure you look into all of the options available to you and consult with a financial advisor or housing counselor before you make a decision to take out a reverse mortgage on your home.

For more information on reverse mortgages go to the HUD Reverse Mortgage Page.