|
|
| Housing News Home Blog* US Housing Articles RSS Sitemap Add as a friend on Facebook Contact Us |
|
|
A Guide to the Reverse Mortgage The concept of the reverse mortgage can be easily delineated with the help of a simple example. Let’s assume that James Mullen of Long Island, 65 years, owns a house valued at $500,000. His house has been paid off and he has no other outstanding mortgage. A reverse mortgage of the house would give him a lump sum of $238,139 or a line credit of that amount. He can also opt for the payment, to be in monthly installments of $1,546 for as long as he lives in the house. James could use the money to supplement his social security, bolster his retirement savings, or put it towards an emergency fund to cover things like unexpected medical costs. Repayment of the loan needs to be made if either the home is sold or the borrower dies. If the former occurs, the borrower or their heirs will need to repay the amount of the loan along with the associated interest and fees from the sales proceeds. The amount of money that the individual can borrow from a reverse mortgage depends on the following: the individual’s age the equity of their home the valuation of their home the interest rate Although the reverse mortgage is a viable alternative source of income for some senior citizens, given the recent housing market crisis there are some definitely some considerations that need to be taken when applying for the loan. With housing delinquencies and foreclosures both on the rise in the first quarter of this financial year, it is quite evident that the slump in the housing market is far from being over. Borrowers are unable to put their homes up for sale or receive the full potential equitable value in their homes. Under the reverse mortgage program, the equity value of the home is ascertained by a percentage of the property value. Reverse mortgage loan limits were recently increased from $417,000 to $625,500 under the Obama Administration. However, despite this, homeowners applying for reverse mortgage programs are still receiving much less money than the estimated amount due to the sharp declines in property values across the nation. There are also some negative aspects associated with reverse mortgages that potential borrowers should be aware of. First, reverse mortgages have high upfront costs. These upfront costs are typically between five and six percent of the underlying homes value. Lenders such as Quicken Loans like writing reverse mortgages for this very reason. The mortgages are also subject to high interest and finance charges, including loan origination fees. This means that the borrower either has to come up with cash to pay for these charges, or roll the finance costs into the mortgage. Another disadvantage of the reverse mortgage is the effect that it has on the inheritance that the borrower would leave behind after death. When the loan amount in addition to the interest and other fees is deducted from the value of the home, there is less money that the home owner would leave for his or her heirs. If the home owner plans to sell their house to move closer to their family or for any other reason, the individual would need to repay the loan at the time of selling. This will mean that they would have less money to invest in his or her next home. When applying for a loan, a potential borrower should find out the interest rate and fees associated with the loan and just how much they would need to repay it. With property values still falling nationwide, a borrower needs to be sure that the amount they owe later is not more than the actual value of their home. |
||||||||
|
|||||||||
