It is a natural occurrence in the life cycle of an individual to change priorities according to their age. In the case of financial needs, for instance, young children have trivial monetary concerns. Teenagers, on the other hand, have increased yet manageable needs. Young professionals have complicated and often unnecessary financial issues. Yuppies, as they are referred to in urban slang, have a higher propensity to buy because of the initial excitement of real-world adulthood.
Middle-aged people have even more complicated yet defined financial necessities. The senior bracket or those nearing retirement have defined financial requirements. Since most people in their retirement age have a unified idea of their needs, they are the ones who are usually targeted by bank and financial institutions to take out loans or reverse mortgages.
A person at the point of retirement age would most likely more concerned about funds and savings more than anything else. And this is perfectly understandable because leaving the labor force entirely would mean ceasing to receive a paycheck on a regular basis. Some people, after assessing and calculating their bank assets and savings would feel that their money might not be enough to last them through their retirement period. That is precisely why mortgages and loans benefit from this demographic.
A kind of mortgage that is designed specifically for the senior bracket is a reverse mortgage. It is only available for persons 62 years and older. The reverse mortgage is a loan that is placed on the home equity. It is referred to as reverse because it is not like normal mortgages when the homeowner receives a lump sum and repays the lender for the debt. In this kind of mortgage, the lender releases money to the homeowner for the life of the mortgage and the loan amount increase is directly proportional to the amount released.
The contract expires when the homeowner dies, sells the house or moves out. At this point, it would be safe to say that, in effect, the mortgage expires when the house is sold. Should the homeowner die or decide to move out, the allotment from the lender stops when the intent to sell the house is expressed, otherwise, the release of money to the borrower will be continuous. In case of death, the heirs will inherit the mortgage and the home, and they can decide to continue the allotment or settle the debt, that is if they intend to move out.
When the house is sold, part of the proceeds will be used to repay the home equity mortgage. If there is an excess, the homeowner can keep it, if the proceeds are not sufficient to settle the amount, the bank or the insurance provider of the bank with the loan will absorb the mortgage.
Before taking out a reverse mortgage, one should research thoroughly and weigh its advantages and disadvantages. This mortgage binds the home to the lender with no chance of reclaiming the property because as mentioned, selling the house is the only factor that would determine the conclusion of the mortgage.
Tuesday, February 15, 2011
Pros And Cons Of Reverse Mortgages
Reverse mortgages have helped thousands of senior citizens to have financial freedom, giving them a lot of opportunities to live a more contented life in their old age. The benefits this program provides sounds too good to be true, but if you're ever interested to apply for a reverse mortgage, it's always a wise move to learn both its advantages and disadvantages.
PROS
Improves Quality of Life
The money that you get out of reverse mortgages can be spent on just about anything that you choose. As a senior, you have the freedom to spend on luxuries as much as you do on necessities. This contributes to happy living. And I believe that each and every one of us has the right to live life to the fullest even in our old age. Reverse mortgages help make it possible.
You Get Tax-Free Money
The funds you receive, whether a fixed income or lump sum, are completely tax-free since the money you receive is not an income, but a loan. Do keep in mind to consult with a tax adviser to ensure that tax is not being imposed on the money that you're receiving, just to be on the safe side.
Extensive Payment Options
You have a choice to receive the funds in the form of annuity, a lump sum, a credit line or a combination of these.
Independence
Having a reverse mortgage allows you the luxury to have full occupancy of your home, ability to maintain and modify it according to your likes, and the right to retain it.
Unlimited Funds as Long As You Live
This is the best part. Even if what your lender has given you already exceeded the cost of your equity, you are not liable to pay this exceeding amount even at the time the loan is repaid. This is particularly advantageous in the face of home price declines.
Your Humble Abode Is Guaranteed Yours
In contrast to a home equity loan, you are guaranteed ownership of your home as long as you live, even in instances of non-payment. In a home equity loan, there's a chance that you could lose your home and assets if you become a delinquent payer.
CONS
Interest Rates
At the end of the day, the money you receive is still a loan. As such, you are liable to pay for interest fees as you continually receive funds from your lender.
Stuck at Home
Consider if there's a chance that you might move to another residence. If you do, your reverse mortgage becomes null and you have to pay off the balance of your equity. Having higher upfront closing costs than other loans makes it all the more difficult.
Restrictions on Eligibility
If you have two or more houses, only the primary residence is eligible for reverse mortgages; a vacation home or a mobile home do not qualify either. Furthermore, those who are 62 and above are the only ones qualified to apply for a reverse mortgage.
Reduction of the Heirs Inheritance
You have to think long and hard how much is going to be left for the inheritors of the equity as the value of your equity decreases every time you get funds from the lender. If you don't want to devalue your heirs' inheritance, reverse mortgages might not be right for you.
PROS
Improves Quality of Life
The money that you get out of reverse mortgages can be spent on just about anything that you choose. As a senior, you have the freedom to spend on luxuries as much as you do on necessities. This contributes to happy living. And I believe that each and every one of us has the right to live life to the fullest even in our old age. Reverse mortgages help make it possible.
You Get Tax-Free Money
The funds you receive, whether a fixed income or lump sum, are completely tax-free since the money you receive is not an income, but a loan. Do keep in mind to consult with a tax adviser to ensure that tax is not being imposed on the money that you're receiving, just to be on the safe side.
Extensive Payment Options
You have a choice to receive the funds in the form of annuity, a lump sum, a credit line or a combination of these.
Independence
Having a reverse mortgage allows you the luxury to have full occupancy of your home, ability to maintain and modify it according to your likes, and the right to retain it.
Unlimited Funds as Long As You Live
This is the best part. Even if what your lender has given you already exceeded the cost of your equity, you are not liable to pay this exceeding amount even at the time the loan is repaid. This is particularly advantageous in the face of home price declines.
Your Humble Abode Is Guaranteed Yours
In contrast to a home equity loan, you are guaranteed ownership of your home as long as you live, even in instances of non-payment. In a home equity loan, there's a chance that you could lose your home and assets if you become a delinquent payer.
CONS
Interest Rates
At the end of the day, the money you receive is still a loan. As such, you are liable to pay for interest fees as you continually receive funds from your lender.
Stuck at Home
Consider if there's a chance that you might move to another residence. If you do, your reverse mortgage becomes null and you have to pay off the balance of your equity. Having higher upfront closing costs than other loans makes it all the more difficult.
Restrictions on Eligibility
If you have two or more houses, only the primary residence is eligible for reverse mortgages; a vacation home or a mobile home do not qualify either. Furthermore, those who are 62 and above are the only ones qualified to apply for a reverse mortgage.
Reduction of the Heirs Inheritance
You have to think long and hard how much is going to be left for the inheritors of the equity as the value of your equity decreases every time you get funds from the lender. If you don't want to devalue your heirs' inheritance, reverse mortgages might not be right for you.
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