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The benefits of today’s reverse mortgages include the ability to live in the home payment free, to receive money from the RM to do home improvements, pay off debts or other mortgages, get protection from housing volatility, and get funds that are not taxable (full article). Money received from a RM is not taxed because it is not income, it is in fact loan proceeds just as getting cash from a mortgage refinance. The money does not affect Medicare or Social Security income as a result, but can have an impact on Medicaid for those receiving that assistance. Current RM have many option types available, including fixed rate options, equity lines where you use money only as needed much like using a credit card- but without any payment requirements, and options for having monthly payments sent to you, or having a lump sum of cash given to you at the loan settlement.

Protection from Market Volatility.

Once you sell your home or pass away you and/or your estate retains any remaining equity after the reverse mortgage and its accrued interest is paid in full. However, should market conditions worsen, or should any event occur leaving the balance of the reverse mortgage at a greater amount than its value, neither you nor your heirs will be required to pay the shortfall. FHA insurance protects lenders from these losses and guarantees that you will never be displaced from the home, and will never have to make a regular mortgage payment on that loan.

Sound too good to be true?

There is a catch – your closing costs on the reverse mortgage include an insurance premium to FHA that pays for this protection. As a result, a reverse mortgage typically carries slightly higher closing costs than a traditional mortgage. You and your heirs are therefore protected in part from the housing market. You get the equity if home values go up, the lender takes the loss if the home is worth less than the payoff of the mortgage.

Closing costs

The closing costs on reverse mortgages are generally speaking a bit higher than traditional mortgages. These costs include paying the upfront FHA insurance premium and other costs associated with getting the reverse mortgage. However with the exception of the appraisal, these closing costs are not charged out of pocket, but are reduced from the loan proceeds upon closing. The appraisal fee can usually be refunded to you at closing.

Reduced equity in the home

Once you borrow money against your home equity a lien is placed against your home. That lien must be paid off once you sell the home or pass away. As a result there will be less equity proceeds going to you or your heirs upon selling the home because the reverse mortgage balance borrowed originally, plus its accrued interest must be paid off at that time. However should this balance be greater than the value of the home you will not be obligated to pay the shortfall.

Loan Responsibilities

You must adhere to loan responsibilities as agreed upon at closing. The primary responsibilities are: reside in the home as your primary residence, pay for property charges such as taxes, hazard insurance and homeowner association dues and maintain the property in reasonable condition. Failure to meet these responsibilities may result in the loan becoming due and payable.

Purchase a home using a reverse mortgage

Should you choose to move now, or sell and move later you may use a reverse mortgage to purchase your new home. Once again you will have no mortgage payment as long as you live in your new home. The only stipulation is that you can only have one reverse mortgage at a time, and it must be on your primary dwelling.

Company Advantages

The amount you get

The amount that you can get as a reverse mortgage depends on the kind of equity you have built up on your home. If possible you can get a home appraisal done to find out how much you are entitled to borrow. See if the amount suffices your requirements and then take your decision.

Payment options

When it comes to receiving funds from reverse mortgage you can choose from different options. You can get it as a lump sum, a monthly payment, or a line of credit. You can also try a combination of these. Consider your personal situation before selecting the right option.

Legislations

HUD keeps changing the rules for reverse mortgage every now and then. They may not affect existing borrowers. But as a senior homeowner who is thinking about taking out a reverse mortgage you may have to keep yourself aware of all these rules and regulations.