While reverse mortgage has become increasingly popular in recent years, various scams pose a potential drawback. One of the most prevalent scams associated with reverse mortgages is companies selling information about reverse mortgage programs, the same information which can be obtained for free by contacting the Department of Housing and Urban Development. But the good thing is that first, due to the popularity of reverse mortgages, those seeking out information about them are fairly well informed about how they work and second, groups like American Association of Retired Persons (AARP) have already made significant effort to educate seniors about the benefits and potential drawbacks of reverse mortgages.

So what is a reverse mortgage? A reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM) is a relatively new product. It is a unique product for elderly people who are over 62, who live in their primary residences, who have substantial equity in their homes, and who have little or no income. This product is a loan against the equity in your home that you do not need to pay back for as long as you live in the home. Reverse mortgage is a product designed for homeowners facing retirement who want to borrow money against the equity in their home and receive cash in tax-free payments. It is different from other types of loans because repayment, including accrued interest, is not required until the homeowner passes away or decides to sell the home.

A reverse mortgage is a unique type of loan because neither income nor credit history is considered by lenders in determining who qualifies. The most important qualification criteria considered by a lender are the age of the homeowner, the value of the home and the amount of available equity in the home. At the same time, the eligibility for a reverse mortgage is set by the Federal Government: The Federal Housing Authority (FHA) tells HECM lenders how much they can lend you, based on your age and your home’s value.

Some of the advantages of reverse mortgages are as follows: A reverse mortgage can be considerably cheaper than selling or moving to a new home. Interest rates are usually lower than on traditional mortgages. You can receive a lump sum, monthly payments, or a line of credit. You would never need to repay a reverse mortgage as long as you live in the home. There can be more options to consider and if you are looking for reverse mortgage help, your lender may be able to talk you through all of these options and provide you with all the necessary reverse mortgage tips. As a prospective borrower however, it may be important for you to consider how you will use the proceeds and whether it makes sense to receive the cash over time or all at once.

One very important point to remember when you are seriously considering going in for reverse mortgage is that by taking out a reverse mortgage, the equity in your home will likely be eroding and there may be less equity available when the lender actually sells the property. You may thus be using up part or all of an asset, which might otherwise be left to children or other heirs. Therefore, it is advisable that before you take your decision, you evaluate all the pros and cons, consider all the available options and make the decision that’s best for you and your specific needs.

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Category: Finances
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