Reverse Mortgage California – Advantages And Disadvantages

Reverse mortgage is one of the best options to support retirement. With careful study you can convert your home equity into much needed cash flow however you must be at least 62 years old. In general words it is a type of loan that senior citizens can obtain by converting their home equity into steady cash flow. In this type of loan borrower doesn’t have to make monthly repayments on the mortgage. In fact the lender can pay the entire mortgage amount in monthly installments to the borrower.

How Reverse Mortgage Works?

Like most of the common folks you must have purchased your home with a regular mortgage also known as forward mortgage. In a regular mortgage the borrower pays monthly installments to repay the loan increasing his equity in the house and gradually reducing lender’s equity. Reverse mortgage California or anywhere else for that matter, works in exactly opposite way. In this case borrower receives money from lender against his equity in the house. However the owner or borrower continues to hold the property title acting as security for the loan. The loan is repaid when either the borrower passes away or the property is sold.    

Advantages Of Reverse Mortgage

Studies have proved that more than half of the senior citizens are unable to support retirement forcing them to sell their properties for less. Reverse mortgage can help such senior citizens in need of cash. Let’s see several advantages associated with it.

1.It doesn’t matter how much cash you have borrowed, normally as long as the borrower (or co-owner of the property in question) is living in the same property they don’t have to pay anything back.

2.Since you are not making any monthly payments to your lender, you can get reverse mortgage Los Angeles or anywhere else without any good credit history. In short credit history is not considered in this type of loan however your property taxes, insurance and maintenance should be up to date. 

3.According to the federal trade commission, if you outlive the loan, in other words if you borrow more than your home is worth, you will not owe more than the value of your home.

4.Cash advances are normally noon taxable plus your medical and health benefits are not affected by cash advances.

5.You hold the title of the property until the loan is repaid.

6.If you have a federally-insured Home Equity Conversion Mortgage (HECM), you can live in a nursing home for up to 12 months before the loan becomes due.

7.After the property is sold and the loan is paid off, any reminder goes to you or your heirs. Alternatively some lenders allow heirs to pay the reverse mortgage and buy the property.

8.A recent court ruling required the U.S. Department of Housing and Urban Development (HUD) to ensure that both spouses are listed on a reverse mortgage, even if one is younger than 62 and can't be an official borrower.

 Disadvantages Of Reverse Mortgage  

1.You must be at least 62 years old.

2.Federal government has made it clear that borrowers must go through mandatory mortgage counseling. There are different approaches towards mandatory mortgage counseling. For example to avail reverse mortgage San Diego and elsewhere in California mandatory mortgage counseling is offered by nonprofit organization for nominal cost or free. It is mandatory for lenders to supply borrower with a list of such nonprofit counseling organizations. 

3.Origination and closing fees are considerably costlier compared to forward mortgage. These fees can be included in your loan amount reducing the amount you can cash out. 

4.Most of the lenders use variable reverse mortgage interest rates tied to short term indices making borrowing relatively expensive and prone to market fluctuations.

5.If you fail to pay property taxes, homeowner’s insurance and other expenses, the loan may come due forcing you to evacuate. 

6.You can’t deduct the interest until the entire loan is paid off, on the contrary your debt increases with time as interest is added to your loan.

 In conclusion

It has been observed that most of than not people are “house rich but cash poor” which means they have more in assets than in cash. Reverse mortgage can help such people turn their assets to generate steady cash flow.