Reverse Mortgage - Right for You?

A reverse mortgage is a mortgage product designed for those over 62 years old. It's called a "reverse" mortgage because instead of making payments to the bank to build equity in your home the bank pays you, thereby reducing the equity that has built up in your home. This mortgage product tends to be used by those who are committed or plan on staying in their home, need additional income and have no other assets, own their home outright or have only a small first mortgage and don't plan on leaving their home to their heirs. Reverse mortgages definitely aren't for everyone so continue reading to see if it's right for you.

Potential Reverse Mortgage Drawbacks

Just like all other mortgage products there are potential pitfalls. Being aware of them before closing on a reverse mortgage will help prepare you for what is to come. First, the proceeds from a reverse mortgage could effect eligibility for supplemental social security income and medicaid benefits. Since regular social security and medicare benefits aren't based on income and assets these are unaffected. Reverse mortgages (like all other mortgages) have costs and fees associated with them. This could make a reverse mortgage an expensive finance tool. If other assets are available (retirement accounts, stocks, bonds, etc.) it's better to use those first. Lastly, a reverse mortgage reduces the equity in your home. It can't be reduced to more than the home's fair market value but it could reduce what is available to your heirs as inheritance. If any of these drawbacks seem like a potential problem down the road it would be wise to reconsider the decision to apply for a reverse mortgage.

Typical Requirements

Since there are all kinds of reverse mortgage products offered by all kinds of lenders and government programs there are different standards that need to be met in order to qualify. Generally, the youngest borrower must be over 62 years old by the time the reverse mortgage closes. Next, the home can't be a mobile home or co-op apartment and it must be the principal residence of the borrower (more than half the year must be spent at this residence). Lastly, the home must meet minimum FHA property standards and the remaining mortgage on the home must be paid off either before the reverse mortgage closes or using the reverse mortgage proceeds.

For more information visit: E-LOAN

For more articles like this visit: Mortgage SuperSearch.com