Ultimate Guide To Advantages And Disadvantages Of Reverse Mortgage


Known as conversion mortgage, a reverse mortgage involves use of the home as collateral to get cash. It is similar to standard mortgage but with the difference that the homeowner does not need an income for qualifying and without any payments of loan. Instant money is possible with this type of advance. One must do his or her homework before applying for such mortgage. Those not able to cover their expenses with their income from savings, social security benefits or retirement funds may use the equity in their homes for applying for reverse mortgages.

General rules – The limit of reverse mortgage loans is generally kept below the estimated values of the properties. Those borrowing under such mortgages should have attained the age of at least sixty two years. People more than sixty two years of age get higher amounts of loan. Payment of loan and interest is made upon sale of the property. Different state authorities govern such loans. The guys that intend such mortgages must either have their own home or have low mortgage balance to be paid off at closing with proceeds from reverse mortgage.

Though it is easy to get cash against such advances, yet one should understand the reverse mortgage pros and cons, listed as under:

Advantages – Following are the unique benefits of such advances:

  • Homeowners that are in need of hard cash on emergent basis are able to avail the same from the equity of their home without the need of incurring any monthly expenses.
  • Those borrowing such loans are not compelled to sell their homes for paying back the loan.
  • The homeowners borrowing such loans are allowed to stay in the property during their lives despite the fact that the loan amount and the accrued interest have gone beyond the value of the property.

Disadvantages – Following disadvantages associated with reverse mortgages should also be understood well before raising such loans:

  • Fees pertaining to such loans are generally higher than that of the conventional types of mortgages. Though not paid up front, the amount of fees costs much higher. The persons that avail such loans have to pay thousands more than straight mortgages.
  • Financial advisory wishing to charge excessively may approach the needy persons for rendering advice or sell the reverse mortgages. Their own fees also cost much.
  • Once entered into a reverse mortgage agreement, the mortgage company would essentially own your home. As such it is important to calculate the cost of reverse mortgage and know well what would gain out of the process.

Seen as the last resort for raising advances, the reverse mortgage pros and cons should be understood well before opting for the same. Family members, legal financial advisor should be consulted before taking the decision to take such loans. Ownership of home is your most valuable asset; hence do not hurry and weigh the advantages and disadvantages with a careful mind and using your wits. The sudden influx of cash should not prove wastage.