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Is a Reverse Home Loan the Right Decision for You? |
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Written by RayM.Mccullum
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Thursday, 11 February 2010 |
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Many people are unaware of exactly what a reverse home loan is, and to find unbiased information is not easy, since most of the information comes from sellers of reverse mortgages. It is important to understand the pros and cons of the use of a reverse mortgage.
by RayM.Mccullum
Many people are not aware of exactly what a reverse home loan is, and to find unbiased information is not easy, since most of the information comes from sellers of reverse mortgages. It is critical to understand the pros and cons of the use of a reverse mortgage.
Firstly, what is a Reverse Mortgage? This type of home loan, developed by the U.S. Department of Housing and Urban Development is one that allows homeowners over 62 years of age who live in the home to transform some of the equity in their homes to cash. If a homeowner owns the home outright, or has very little debt, he has unused equity in the home. What makes it different from a regular home equity loan is that no principal is paid until the home is no longer occupied by the homeowners.
The loan is paid off only after the homeowner sells, not on a monthly schedule. This of course means that the house has to be owned outright, or that the mortgage balance is low enough that the additional equity over the other mortgage can pay off the reverse home loan.
Many older homeowners have taken advantage of this scheme to add to their income, cover medical expenses or make needed accommodations to their houses. Older people, without a salary would not be eligible for a standard equity loan that requires repayment.
But as wonderful as they sound, make sure they are the best tool for you before you opt for a reverse home loan instead of a traditional one.
There are additional costs that need to be considered such as the non recourse insurance that is mandatory in case excess funds are withdrawn and there is not enough in the sales price to cover. Reverse mortgage loans also have the typical costs of a mortgage, but they are added to the advance amount.
Since they can be high, it is important to know what they are. If you will only be availing yourself of the money for a few years, you may be withdrawing too much away from your home's equity with up front costs that will not be spread out over a long time.
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