Information on reverse mortgage loans

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Before taking a reverse mortgage, a home owner should ensure that he/she conducts an extensive search on the advantages and disadvantages that come with this loan. This is due to the fact that a reverse mortgage is usually a binding agreement and as such, you should ensure that you are understood all the terms of this mortgage. It is also important to ensure that you are in a position to meet all the conditions set before taking the loan. In most cases, home owners only consider the benefits and advantages that come with these loans while forgetting to consider the setbacks and disadvantages too. This is usually very risky especially because there are different complications that may arise during the mortgage repayment. These complications can be avoided by ensuring that you understand all the terms and conditions of the mortgage loans.

Limitations of a reverse mortgage

One thing that home owners should be aware of is the fact that after applying for a reverse mortgage, they can not sell the home. This is due to the reason that if the home is sold, its equity is lost and as such the reverse mortgage loan becomes due and as such it has to be repaid back. Usually, a reverse mortgage loan is usually high and can easily cause a financial burden as the selling price of the house may not be enough to cover the loan. Therefore, a home owner can find him/herself in a very great financial crisis especially because he/she has no income other than pension benefits.

When do reverse mortgage loans mature

Reverse mortgage loans become automatically due after the home owner whose name appears on the loan documents dies. If in case the mortgage was a joint venture between two home owners, both of them have to die in order for the loan to be due. After death of the borrower(s), the responsibility of servicing the loan is usually passed on to the heirs of the estate. After the loan is passed to the heirs, there are only 3 options that are applicable in order to settle the loan. The first option is where the title of the house is passed on to a commercial bank. Ownership and liabilities of the estate are then passed to the bank. The second option is whereby the buyers can decide to sell off the estate. If the heirs make such a decision, the lender allows them a grace period of up to a year to have found a suitable option. The third and most commonly used option is whereby the heirs refinance the loan by passing it on to another lender. The new lender finances the loan and retains ownership of the estate.

Which is the best option to cover a reverse mortgage loan?

In situations where the estate’s worth is more than the loan’s balance amount, it is usually advisable that buyers should sell it off. While opting to sell the home, it is important to conduct an extensive search in order to find the most suitable buyer who is going to offer the highest amount. However, in situations whereby the balance value is low, repaying the loan is better as the heirs retain ownership of the estate.

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