Pitfalls of reverse mortgages

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Reverse mortgages are increasingly becoming very popular among different people especially seniors. This is due to the reason that this type of a loan is based on home equity and as such it does not require any monthly repayments. This is usually quite important in that it helps in ensuring that seniors do not experience any financial   burdens in their retirement period. In  order to be given this type of a loan, it is important  that seniors are over 62 years of age and that  the senior should be  the legal owner of the home he/she wants to use in taking a reverse mortgage loan. After this loan is issued out to the borrower, any outstanding mortgage balance is cleared using the money from this loan. The remaining money after the mortgage balance is left to the senior to spend as he/she wishes.

Concerns about reverse mortgages

A reverse mortgage loan has no impact whatsoever on benefits such as Social Security benefits and or Medicare benefits. As such, the borrower still continues to receive other benefits by the government despite the fact that he/she may have received an entirely high amount of money as reverse mortgage loan. However, in situations where you may decide to retain the money you receive as reverse mortgage loan, it  is then considered as an asset, a fact that can easily  disqualify from receiving benefits such as Medicaid among other benefits.

Receiving payment

There are different forms through which you can be able to receive payment/ money issued in reverse mortgage loans. The first and most commonly used option is the mass payment in a single lump sum. This method is usually very effective especially in situations where you have to clear an outstanding mortgage balance. The second option is whereby you receive the money as fixed monthly payments over a long duration of time. This method is rarely used despite the fact that it is the best option. The best thing about this option is that it enables one to achieve financial stability as wastage of money issued as reverse mortgage is very low.

The third payment option is the use of a line of credit. In this option, money is received in portions received at different times upon the borrower’s request. The best thing about this option is that it helps in ensuring that taxes are only charged on the amount of money you use. Reverse mortgage loans are free from taxation, a factor that helps in ensuring that money received is not subjected to deductions and or any other contributions.

Setbacks of reverse mortgages

The main setback about reverse mortgage lies in the fact that after applying and been issued with a reverse mortgage, the borrower is tied onto the property. This implies that the borrower can not pass the occupation of the house, resell it or even transfer its ownership to another person. Either of these situations leads to the maturity of the loan and the borrower is expected to payback the loan. Naturally, reverse mortgage loans usually mature in the occurrence that the borrower dies thereby making the ownership of the home void. Heirs are then expected to settle the loan in order for the home’s equity to be freed.

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