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Reverse mortgage disadvantages and advantages By: Amy Fontinelle, August 23rd Tweet Wondering about reverse mortgage disadvantages and advantages? Reverse mortgages are perhaps better known for the former than the latter. They can be hard to understand, the fees and interest consume a substantial portion of the homeowner's equity and they've been used in home repair and investment scams to steal money from unwitting seniors.
But when used by homeowners who understand what they're signing up for, reverse mortgages can be a valuable retirement tool. The typical American's net worth is largely tied up in home equity. That's especially true for those 65 and older.
A reverse mortgage, also called a home equity conversion mortgage HECMlets seniors who are at least 62 years old access the home equity from their primary residence in the form of a lump sum, a line of credit, a stream of monthly payments or some combination of these. To qualify, seniors must own the home free and clear or have a small enough remaining mortgage balance that the reverse mortgage can pay off that balance and still provide enough money after fees to benefit the homeowner.
Seniors who have no other savings, however, might find that a reverse mortgage is not enough to meet their retirement needs. Good candidates for a reverse mortgage include seniors with enough income to meet their monthly living expenses but not enough for emergencies or repairs, or those who have savings for emergencies and repairs but need to supplement their income, said Cara Pierce, a reverse mortgage counselor with Clearpoint Credit Counseling Solutions in Fresno, California.
Before taking out a reverse mortgage, you should thoroughly understand reverse mortgage disadvantages and advantages. Reverse mortgage disadvantages Reverse mortgages have many potential disadvantages. But these won't be a problem for all borrowers, especially those who educate themselves so they can accurately evaluate whether this type of loan is right for them.
Here are some reverse mortgage disadvantages: Fees, interest and mortgage insurance eat up equity. Just like regular mortgages, reverse mortgages have closing costs such as origination fees, an appraisal, title insurance and a home inspection. And because they are insured by the Federal Housing Administration FHAborrowers must pay mortgage insurance premiums.
These costs get subtracted from the total amount you can borrow.
In addition, reverse mortgage borrowing limits are lower. Because the homeowner is using up the equity in the property, the lender limits how much the homeowner can borrow based on age.
Given the costs, why not just do a cash-out refinance to access your equity? Mortgage insurance costs reverse mortgage borrowers 0.These old age homes have special medical facilities for senior citizens such as mobile health care systems, ambulances, nurses and provision of well-balanced meals.
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