Reverse mortgages are actually second loans taken over existing homes. When a person has lived long enough in his/her home, then the home would build on equity. Taking this equity as collateral, the person will be able to borrow another loan later in life. This loan is a reverse mortgage. Such a loan can be paid in one go; or paid monthly to the homeowner. So, in a reverse mortgage the homeowner does not have to make the payment; instead the lender makes the payment to the homeowner. With the reverse mortgage another home can be bought, in which the person can peacefully spend his/her time after retirement.



Why do people go in for reverse mortgages? Well, the obvious advantages all are present with reverse mortgages, such as having liquidity in hand and the ability to make purchases which seem to be beyond the budget. Otherwise, the money could be simply used to carry out the living expenses, medical bills, prescription bills or some long-due house repairs. Quite simply put, reverse mortgages can improve the life of a person even after the retirement. Reverse mortgages do not influence social security payments or Medicare benefits like other policies do; hence they become very valuable to senior citizens who are past their active earning ages.

Looking at the advantages that reverse mortgages have, it seems as if going in for these mortgages ought to be a very good idea. But then this is only one side of the coin. Reverse mortgages are not without their flaws. One limitation is that reverse mortgages can affect the eligibility for state and federal government programs such as Medicaid.

However, the advantages grossly outweigh the disadvantages. As already stated, reverse mortgages do not disturb the social security number and Medicare benefits in any way. But the greatest point may be that with reverse mortgages, the people do not need to make any monthly payments. The borrowers can live in luxury for the rest of their lives without having to pay back any money. After their death (since generally senior citizens opt for reverse mortgages), the property is sold off by the lending institution to get back the amount they had paid.

This does link a limitation that there will be little or no inheritance left for the successors in the family. So a reverse mortgage would only work for people who have no immediate families or who do not wish to bequeath their properties to anyone for whatever reasons. So it finally depends on the borrower whether to go for a reverse mortgage or not.

People with reverse mortgages do not have to make payments; instead it is the lender who keeps making the payments. In order to avail of such a fantastic loan, the borrower needs to meet certain qualifications. One important qualification is that the borrower must be at least 62 years old. Another factor is that the borrower must be counseled by the HUB, which is the Housing and Urban Development. This body will explain the potential borrower about the pros and cons of a reverse mortgage. The counseling could be either in-person or via the telephone.

The reverse mortgage process also includes several costs. These costs are incurred for the application fees, closing costs, insurances, appraisal fees, credit report fees and also a monthly service fee in most cases.

Repayment of the loan is done either when the borrower wishes to move out of the home, or to sell it, or if he/she dies. In that case, the home is generally sold off in order to get the mortgage value back. But as long as the borrower lives in the home, he/she must make the payments relating to property tax, insurance and repairs. Backing out on these payments could make the loan due in full. There are some tax perspectives that also need to be looked into. Income from a reverse mortgage is nontaxable. But you need to show the income in the returns.

Everyone applying for a reverse mortgage would not get the same amount. The amount would depend on factors such as the age of the person, the value of the current home, interest rates and the type of the reverse mortgage opted for. The available amount from a reverse mortgage increases as the ages of the person and the home increase.

So there are many aspects to a reverse mortgage ? it is not just black and white; there are many grey areas in between. Do your homework thoroughly if you want to get the maximum benefits of the reverse mortgage. Also remember that what works for your friend may not necessarily work for you too.