Much as there are positive feedbacks, contradictions or myths of reverse mortgages can also be found. This is not surprising considering that what is supposedly involved with this financial program is the acquisition of monthly cash flow in addition to the monthly retirement income received by the senior citizens 62 years old and above.
So what are these misconceptions?
First is, the bank owning your home the moment you avail of the reverse mortgage loan. This is not the case. The truth is your home is yours as long as you remember these three things: you are living in it, you are paying your insurance and property taxes, and you are maintaining it in good reasonable living condition. The monthly cash flow you get from the reverse mortgage can even be used to cover those expenses.
The second misconception is the financial program as being very risky. In contrary, it is widely regarded as safe. Why? It is because it is federally protected to prevent the senior citizens from being predated and taken advantage of by the lending institutions. There are certain safeguards and strict regulations that the federal government that are placed to promote the best interest of these individuals.
It is also a common misconception that you won't qualify if you still got mortgage balance existing on your home. Again, this is not true. In fact, if your home still has sufficient equity, you are eligible. You only need to pay off your existing mortgage balance at the closing of the loan. But then, you can also use the reverse mortgage loan to cover for that existing balance.
The next one is also a common misconception – that the reverse mortgage is taxable and affects your Medicare or social security. Not true. Why? Because the proceeds you get are not considered income but a loan. Therefore, you don't need to worry that the loan will be reduced because of tax. It is recommended though to consult with your Medicare and social security programs to ensure you know the specific rules whether these are affected or not.
Another misconception about reverse mortgages is the false idea of owing a total more than the appraised value of your home. In fact, this will never happen because of the safeguards and protections placed on this financial program by the federal government so that your estate or home would not end up getting higher debt than its total appraised value.
When your reverse mortgage is due, your home is owned by the bank. Not true. As long as you are living in that home, you maintain its tile, and control it on your own terms. When you are out of that property though, the loan must be paid. It can be paid via a couple of ways: by selling the estate and using its proceeds to pay or by paying it through other fund sources.
Other family members will object with reverse mortgages loan because they are not comfortable with its effects. On the contrary, there are many things that you can use to help them to live their life more comfortably. An example is, with the monthly loan income, on top of the monthly retirement pension pay, senior citizens can use the money to pay for their grandchildren's education, renovation of the house, cover for large emergency expenses, and many more.
If you are thinking of reverse mortgages, it is not a good idea to plunge right ahead and submit your application right away. Learning the advantages and disadvantages will help you come up with a wise decision in so far as financial loans are concerned. After all, loans will end up anyone up needing to pay all the dues – and this can be a scary thought once you are stuck with high mortgage fees and charges.
Here are the advantages of reverse mortgages.
For most people, this program is a savior because of the positive impact it brings to the quality of life of most senior citizens. First is because of flexible financial program and the limited restrictions on how they can receive and spend the loan. There is no default risk since the home is yours under certain circumstances and the lender has no right to take it away.
The total of what you will owe the bank will also not be more than what is your home's worth even though you get more from the lender. This advantage is particularly interesting especially if the value of the home depreciates or declines.
Reverse mortgages are also tax free since the proceeds are loans and not income, whether you receive it lump sum or fixed monthly cash flow. They offer flexible payment options, from options of credit line, annuity, lump sum, or combination. They ensure your home ownership and no income qualifications are set for you to avail the program.
You are protected because the federal government has set some strict regulations and safeguards to avoid the lending predators from taking advantage of the rather vulnerable senior citizens. One positive effect on the life of the applicants is the receipt of payments even if the lender defaults on your reverse mortgage loan. And of course, you can use the funds to whatever you want to spend it.
Just like in any other mortgages, along comes the disadvantages:
It is not recommended for senior citizens to take this program if they are planning to move out or to stay in their homes for a long period of time. This is because the moment you do not live in your home, your home mortgage due takes effect.
This is not good since most up front closing costs that lenders make are usually higher than other types of loans. So, in this aspect, reverse mortgages are not recommended for the people who are not keeping their home as primary residence.
Reverse mortgage can also decrease equity of the home and in effect affects the estate. It is for this reason why many do not consider reverse mortgage because they want to leave the home to the heirs. However, the heirs also have the option to keep and refinance the home, sell it if its worth becomes higher than what it is owed.
Reverse mortgages can be advantageous or disadvantageous to some people, but under the right circumstances, they can be good financial retirement option to others. With the set of those given facts, it is not about how it can benefit you or how it can deter you from living a comfortable life later but it is a matter of coming up with a wise decision.
Final say? When it comes to financial retirement plans, be sure to do lots of research about reverse mortgages before plunging right head on.
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