There are a lot of myths dancing around about Reserve Mortgages these days. It seems that most people think that if you're age 62 or over and need money to help pay for home improvements or a cruise to the Bahamas, a reserve mortgage is perfect for such desires - not so! Reserve mortgages were created with a very specific purpose in mind.
What is a reverse mortgage?
A reverse mortgage loan is a federally insured private loan for senior homeowners that enable those over the age of 62 to translate a portion of their home equity into cash. In dealing with reverse mortgages, no repayment is necessary until the homeowner decides to sell the home, decides not to use it as the principal residence, or dies. In case of death, the home is sold or refinanced by the inheritors to pay off the mortgage and the remaining equity is given to the heir.
Reverse mortgage purpose:
A reserve mortgage loan was created with one purpose in mind: to help seniors on a tight budget obtain money for living expenses. This type of loan is specifically for helping those seniors who may lose their house otherwise, or not be able to buy food or pay medical costs. The cash obtained from a reverse mortgage can be paid all at once in a single lump sum of cash, as a regular monthly cash advance, as a credit line account, or as a combination of these payment methods.
Disadvantages of a Reverse Mortgage
A disadvantage for those seniors using a reverse mortgage loan for frivolous spending is that if they are ever in dire straits, which is the purpose of the loan, they may have already dissolved their home's equity. Another disadvantage is that unless one is expecting to stay in their home for at least five years, reverse mortgages are not very beneficial. Up-front costs are very high and unless one is certain that they will be in their home for over five years, the benefits are close to none.
Using a Reverse Mortgage for Need
The benefits of a reverse mortgage are straightforward: If medical bills and climbing expenditures are making it difficult to live day to day, and one is planning on staying in the home indefinitely, then it is the perfect way to obtain extra cash to keep afloat, without the hassles of an extra monthly payment.
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Carrie Reeder is the owner of ABC Loan
Guide, an informational website about various types of loans.
