What Is Reverse Mortgage

Although there are many mortgage options now being offered to potential homebuyers, one that has received a lot of attention is the reverse mortgage. The United States Department of Housing and Urban Development, also known as HUD, is currently being inundated with questions with a large number of people asking "what is reverse mortgage?"

One of the things that make a reverse mortgage different from others is that it is a private loan, although it also has the backing from the federal government. For homeowners who are 62 years and older, who own and live in the home, and have built up equity over the years, there are funds that can be used in any way wanted.

One of the main values when it comes to what is a reverse mortgage is that the homeowner's income is not checked or even considered. This means the person could have very little or even no income and still qualify for a reverse mortgage loan. Of course, as with any mortgage, there are various dynamics that are looked at by the lender in making the final decision on approval.

In answer to what is a reverse mortgage and is it a good choice, there are other things that come into play. As far as how the money is distributed to the homeowner, there are three options to include taking a lump sum, getting a specified monthly check, having a line of credit, or the homeowner can mix and match the choices. Keep in mind that paying back on this type of mortgage does not take place unless the homeowner moves, sells the home, or should die.

Of course, while there are many incredible value factors for what is a reverse mortgage, gaining knowledge about the good and bad is what will ultimately help the homeowner move in the right direction. As you will see below, consider the good and bad sides to a reverse mortgage prior to making your final decision.

Advantages

The first good thing in response to what is a reverse mortgage and is it a good choice is to know that the funds coming from the home's equity can be used in whatever way the homeowner prefers. This means the money could be used to take vacations, add on to or improve the home, send a child or grandchild off to college, pay off bills, have surgery, etc.

The other side of the question "what is reverse mortgage", you need to understand that along with pros, there are also some cons. One is that the interest rate attached to the loan is variable. This means the repayment would be more costly than that of a traditional type of refinance mortgage and that in the case of death; any family members would likely have little to no equity to inherit. Of course, any other savings, pension, or assets that would be left to loved family members would not be affected whatsoever by the reverse mortgage.

Without verification on income and no monthly payments until dying, moving, or selling, the reverse mortgage is beneficial to many. For the elderly homeowner, a mortgage such as this allows them to continue on with a certain lifestyle without being overwhelmed. People who have worked long and hard their entire life can use funds from a reverse mortgage to kick back and enjoy life.

Finally, if the homeowner were to pass away, any heirs would have the legal option to refinance the loan to that of a more traditional loan. However, there are variances of the reverse mortgage so is inheritance issues are important to the homeowner, these options need to be reviewed and analyzed carefully.

Negative Aspects

As you can see from the information provided above, there is tremendous value associated with what is a reverse mortgage. Unfortunately, there are also some downsides to this type of loan that should be reviewed. First, there are reverse mortgage rates and fees associated with any loan such as application fee, appraisal, insurance, closing, etc. However, in the case of a reverse mortgage, the fees are typically higher and in fact, there are some lenders that will also tack on a service fee of some kind.

Then, when looking at "what is reverse mortgage" and possible disadvantages, keep in mind that the home's condition would also be a factor looked at by the lender. For the loan process to be finalized, the home would have to be deemed structurally sound and in good condition. However, if problems are identified, most often any needed repairs to bring the home to set standards would be added into the reverse mortgage loan.

The question of what is a reverse mortgage and is it a good choice is very important. With a ton of information to decipher, doing your homework doing reverse mortgage quote comparisons and talking to a professional from HUD will help guide you in the right direction.