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Reverse Mortgage Loans Advantages And Disadvantages

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Reverse Mortgage or Home Equity Conversion Mortgage (HECM) is a home loan for elderly citizens that do not need any monthly payments. The loan is repaid either after the borrower dies or moves out. It allows the homeowners to access the equity they have built in their homes. Homeowners are also entitled to delay payments until they move, die, or sell the property. In such conditions, the interest is added each month to the loan amount. It can also create a condition where the rising loan balance can exceed the value of the home but in most countries there is a law against that which states that the balance amount cannot exceed the value of the property.

Purpose of Reverse Mortgage:
The purpose for taking a reverse mortgage loan might differ …show more content…

Some important featur5es of reverse mortgage loans are explained here.

• Access to Cash: Reverse mortgage loan give senior citizens an early access to cash. This is because most senior citizens are not able to maintain the level of lifestyle as before. In such conditions, reverse mortgage loan gives them access to cash that allows them to be self-dependent and support their own needs. The money acquired in the form of loan can be used for anything such as settling old debts or dealing with a severe medical condition.

• No Need for Mortgage Payment: Many people take advantage of the reverse mortgage loans as they already obtain such loan as the last resort of income. Also, reverse mortgage loans do not require to be paid each month, instead loan can be settled after the closing. In such conditions, you do not have to worry about the mortgage payment and you can allocate the loan amount as per your …show more content…

It has a direct relation with the rising value of property depending on the socio-economic environment. The value of the house is appraised at the time of loan approval but it can be redetermined as well. Borrowers can refinance their reverse mortgage loans and get increased credit limit. This way they can also settle their previous mortgage as an increased value means that you can earn even more from your property.

Limitations of Reverse Mortgage Loans:
Apart from having several advantages, borrowers consider reverse mortgage loans as a last resort of income. This happens because certain limitations are associated with the product. Some of the limitations include:

• Reverse mortgage loan involves high rate of interests and it results in huge accumulated interest. It can act as a source of survival but cannot be the first choice of any borrower. Also, variation in rates of interest and loan amount can lead to serious troubles.

• In reverse mortgage loans, the property is pledged to the lender. It means that the borrower is officially giving the rights of the property to the lender if the borrower is not being able to repay the loan.

• Borrowers who fail to pay their property taxes and home insurance can lead them to pay their reverse mortgage early. It can be a highly difficult situation as their plans of receiving regular income for specific time period can

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