Reverse Mortgage Disadvantages and Advantages

Reverse Mortgage trends are becoming increasingly popular as many mature borrowers, over the age of 62, who are searching for ways to maintain their independence. The reverse mortgages, also commonly known as Home Equity Conversion Mortgages (HECM), give them that option. The HECM program offers mature borrowers the ability to use the equity in their homes for additional financial support, such as monthly payments, a line of credit, a lump sum or a combination of all three.

It is important to know there are reverse mortgage programs available for mature borrowers. The most commonly used reverse mortgage is the federally insured program because it is backed by the U.S. Department of Housing and Urban Development or HUD. There are advantages and disadvantages for the reverse mortgage program that mature borrowers should be aware of prior to participating in the program.

The advantages of the overall reverse mortgage program are:
* Mature borrowers are allowed to keep and remain in their current home while using the equity to receive various payments at one time or over an extended period of time.
* Reverse mortgages are not tax deductible loans, meaning mature borrowers are not required to pay any income taxes on the money they receive. * Mature borrowers are able to use the money they received to either pay-off medical bills, various debts including outstanding mortgage balances, or at the discretion of the borrower.
* Reverse mortgages allows for mature borrowers to remain independent.

Unfortunately, with every loan program, traditional or reverse, there are some disadvantages mature borrowers should be aware of. The overall reverse mortgage program disadvantages include:

* The initial front-end expenses, which are due at closing, are considerably higher than a traditional loan. Expenses include origination fees, closings costs, and other charges. These costs are typically rolled into the loan balance making the amount available to the senior less.
* The interest rates for all reverse mortgage programs are set higher than traditional loans because of the program structure. The reverse mortgage program does not mature until the borrower dies or moves out of their home; therefore there are no payments due while the borrower is in the home.
* For many mature borrowers who receive benefits such as Social Security or Medicare, and elect to participate in a reverse mortgage program, may be in jeopardy of losing or having their benefits significantly decreased if they use more equity than allowed for program requirements. Mature borrowers are advised to only use their equity when needed rather than withdrawing all of the money and putting it in some form of a savings account.
* If mature borrowers default on their reverse mortgage by either not paying their property taxes, insurance premiums, or maintaining the maintenance of their home then the lender may request the reverse mortgage balance be immediately due and payable. While the negatives of the reverse mortgage program may seem to outweigh the advantages, mature borrowers needing to supplement their income and remain independent are encouraged to speak to their loved ones or a financial consultant for details of the reverse mortgage program. Many things are important when determining if the reverse mortgage program is right but it all begins with a peace of mind. If you would like more information, please call (866) 683-3690 or visit our Reverse Mortgage Calculator

by Robert Griffin
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