In past reverse mortgage was considered to be a risky affair for a borrower, but today, with new norms and guidelines in place, it is much safer. Consumer safeguard guidelines play an important part in ensuring that as a borrower you know what you are getting into.
Reverse mortgage can be a very important decision of your life and thus has to be made carefully. It is true that reverse mortgage provides senior comfortable living by regular income without leaving their house, but one should be aware of its pitfalls before going ahead.
You have finalized the reverse mortgage deal, you did all the analysis and comparison which one will suit you best and now you have the money in your hand. Suddenly, there are lot of possibilities which open in front of you – what you can do with that money. This is especially true when payments are done on a lump-sum basis rather than on a disciplined monthly basis. Money to all is intoxicating, it gives a sense of power and that's where many make mistakes in investing / spending it in ways not appropriate.
Reverse mortgage is surrounded with many misconceptions, mostly due to lack of proper knowledge but also due to unfortunate instances with borrowers in past. But presently, reverse mortgage, with Home Equity Conversion Mortgage (HECM) a government backed product and stricter norms reverse mortgages have become much safer options for senior citizens. Some of the common misconceptions related to Reverse Mortgages and their reality are covered here:
Reverse mortgage is a loan against your home that the borrower does not have to pay back until he lives there. This is a method to get cash value from your house without leaving it and even worrying about repaying it. As you can see reverse mortgage is very different from the “normal” or “usual” mortgage schemes. One can get payments from reverse mortgage in 5 different ways. These are explained below:
- Reverse Mortgage Term payment option: This option ensures that the borrower receives fixed monthly payments but for a particular time period
- Reverse Mortgage Tenure payment option: Under this option fixed monthly payments are provided as long the borrower lives in the home
- Reverse Mortgage Line of credit payment option: Under this option the borrower decided when to withdraw funds and how much
- Reverse Mortgage Modified term payment option: This options adds access to line of credit to a term payment option
- Reverse Mortgage Modified tenure payment option: This option adds access to line of credit to a tenure payment option
Many reverse mortgage product users have enquired about refinancing of their mortgage. It is important to understand what exactly it means and in which conditions a borrower should avail it.
Reverse mortgage depends upon key factors such as – borrowers age, interest rates, home prices (limits set by federal laws) and borrowers equity in the home. These parameters keep changing as time passes and in many cases for the benefit of the borrower.
Reverse mortgage is a loan against your home that the borrower does not have to pay back until he lives there. This is a method to get cash value from your house without leaving it and even worrying about repaying it. As you can see reverse mortgage is very different from the “normal” or “usual” mortgage schemes.
One of the most important criteria to obtain HECM Reverse mortgage is the property on which the loan has been obtained should be the primary residence of the borrower during the life of the loan (i.e., till the loan is repaid, the home should be principle residence of borrower). Seniors can’t obtain loan on rental property.
As people grow old and their health can’t support them to perform their daily routine work, they require intensive care that has to be taken either by their children or a caretaker. Generally it’s not possible for their children to take care 24×7 because they have to work to support their living. So, they hire caregivers to take care of their parents because they don’t want to place their parents in a nursing home. But hiring caregivers to take care 24×7 is very costly and most of them can’t afford it. This is a common scenario especially in case of elderly suffering from diseases such as – Alzheimer, acute bone / joint related problems, Schizophrenia, etc. This is where reverse mortgage can help the elderly. They can fund their in-home care expenses using and still own the home.