Blogs in Real Estate

Reverse Mortgages Aren’t Perfect

        Everyone may find that he or she needs a reverse mortgage at sometime or the other to fulfill some pressing requirement. These requirements could range from making home improvements to buying a new car to putting your child in the best college. With reverse mortgage, the money a person gets hold off can be spent in whichever way he likes. And many a times, this equity need not even be paid back. Also, the process of acquiring a reverse mortgage is simple and quick and no employment or credit certifications are required to complete the reverse mortgage transaction. Thus, the advantages offered by reverse mortgage are so many that the concept has gained popularity in the loan business.

But every coin has two sides and reverse mortgage has some shortcomings. There are some precautions which need to be taken while going for reverse mortgage.

In case of death or moving out of the owner of the home, the house has to be sold to pay for the mortgage and the mortgage has to be paid in lump sum. But if the heirs or the homeowners are interested in keeping their hold on the house, payment on the house has to be made before the due date of the mortgage. Thus, the homeowners have to decide between paying the mortgage and keeping the home or selling it off.

Over and above, a two percent fee is levied on an insurance premium. Plus, another two percent is taken away as loan origination fee. Standard closing costs are also levied. Thus, if you take a $200,000 loan you can expect to pay about $10,000 as fees associated with the original loan.

When the homeowner already has a mortgage on the home and wants to apply for reverse mortgage, the mortgage value will be first paid off from the money raised by reverse mortgage. Even if personal funds are acquired, the mortgage value is first paid off before handing over the remaining money.

Thus, a reverse mortgage does have certain clauses associated with itself which are known to cause many problems for the customers. When applying for reverse mortgage, it is important to ensure that the right amount of loan is taken according to ones needs. In most cases this would involve checking out several lenders as well as their heirs to make sure that everyone is agreeable with the plan. There are also several other ways in which an individual could save money too. For example there are several local and state governments that offer a reverse mortgage loan at much lower fees and sometimes no fee at all.

A reverse mortgage offers plenty of benefits, But it is always advisable to weigh your own pros and cons before applying for this kind of loan - it’s not right for everyone.

Reverse Mortgage Tax Benefits

Due to the popularity of reverse mortgages. More and more people are looking into reverse mortgage in order to meet their financial commitments. Every year, the number of people opting for reverse mortgages is increasing because it has very low cost associated with it and hence is affordable.

The biggest advantage of reverse mortgage is that it allows individuals to spend money on anything that they wish. Thus, this extra money can be used to pay off debts and make home improvements or even buy a new home. The only care that needs to be taken before the usage of these funds is that the existing mortgage on the home has to be paid off in full prior.

But it is the tax benefits where reverse mortgage offers maximum benefits. In standard mortgages, the fees and taxes are cut from the loan amount before it is handed over to the loaner. But the funds from a reverse mortgage are not taxed, which in effect gives the individuals extra funds to work with because he knows that not a single cent from the money is going to be taken away by the government.

Reverse Mortgages are even more beneficial for those who are 1) on social security or 2) for those who have Medicare. Also, reverse mortgage does not affect the individual’s benefits.

The problem with standard mortgages is that they prevent an individual from making money every year above his social security limit – this is not the case with reverse mortgage. This loan does not put such restrictions and therefore, one can enjoy all the extra benefits that they acquires in a given calendar year.

But if money acquired from reverse mortgage is kept past the calendar year, it will be considered as a liquid asset. This will lead to tax as well as ineligibility for the reverse mortgage program.

After applying loan via reverse mortgage, the fund that one receives depends on various factors. Firstly, the home needs the appraisal of either Federal Housing Administration or Fannie Mae. This approval goes a long way in determining the value of the house. Other factors affecting the value are the starting interest rates, location of the house and the fees associated with the transaction. Thus, these four factors actually determine the funds which can be acquired using the concept of reverse mortgage.

So, when taking the plunge into the reverse mortgage market, one has to take the help of the HUD approved counseling which will help them make the right decision regarding the correct loan. This counseling session is basically provided by the FHA to help the individual make the proper choice according to his needs and demands.

Again, a reverse mortgage is not always right for everyone, but can be a part of certain financial planning if it works for you.