Reverse Mortgage

With Wall Street Firms dropping right and left like flies, many seniors are nervous about the disadvantages of a reverse mortgage and the security of the firms holding them. But, they shouldn't be. Reverse mortgages may have some disadvantages, but the are also backed by the Federal Housing Administration so even if the mortgage company goes under, seniors are protected.

Given the finances of older people today, many would resort to the only option available which happens to be the sale of their one and only investment, a house and lot. But then again, seniors can always take a reverse mortgage in order to follow and live a decent lifestyle despite debt servicing. A reverse mortgage is an exclusive loan intended for senior citizens of at least 62 years old and still living in their own home. The loan can be used to pay for other mortgages, health care expenses, for improvements or as a way to augment retirement income. Availees can benefit more because this does not in any way affect existing MediCare and Social Security benefits. Thus, retirees are still able to pay off existing financial obligations without the need of losing their homes.

Under a reverse mortgage, a portion of the senior citizen's house serves as collateral for the loan. In contrast to regular mortgage practices, the senior citizen need not pay back the money borrowed as long as he owns and settles in the house. Payment on a reverse mortgage transpires when the senior citizen dies, when the house is sold or when it ceases to be the primary residence of the senior citizen.

There are three types of reverse mortgages: single-purpose, federally insured, and proprietary. A single-purpose reverse mortgage is availed due to the expected low cost payment scheme that is embodied in the agreement, where proceeds may be used to fund other purposes such as the settlement of property taxes and home improvements. Moreover, the availability of this type of mortgage is limited to a few local government agencies, nonprofit organizations and states. Federally insured reverse mortgages, also known as Home Equity Conversion Mortgages and offered by the Department of Housing and Urban Development, have similar programs with the proprietary home loans extended by private creditors. Funds can be used to support diverse purposes but these tend to carry higher fees as well as repayment amounts. These can be availed in any state, with no meticulous application requirements necessary such as a medical history for instance. However the future costs and benefits provided by these types of mortgages vary. An applicant should effectively compare these factors before even considering the filing of an application.

There are underlying fees and charges in a reverse mortgage, which can be one of its disadvantages. The lender usually provides a table of specific fees pertinent to the availments. This being a mortgage, repayments are thus expected to increase due to interest charges that are integrated with the principal and distributed over monthly payments. Another of the disadvantages is that senior citizens also need to keep up with the payment of property taxes, utilities, insurance and other payments because ownership remains at his disposal until such time that a particular condition transpires that transfers ownership to the creditor, as stipulated in the loan agreement.

But, overall many seniors find that the advantages outweigh the disadvantages of a reverse mortage, especially if they are house rich and cash poor in their retirement age.