When you need some extra money it can be tempting to apply for some sort of loan. Reverse
mortgages, also known as home equity conversion mortgages, are special loans given by lenders
against home values. If you apply for one then you will receive a percentage of the value of your home
in the form of spendable cash. But, before you do so, you should know why this special process exists
and how it works.
The first HECM began in 1961 in the U.S. state of Maine. At that time a woman who was in danger of
losing her home due to the sudden loss of her husband’s income asked a local lender for help. The
lender decided to make the woman an unusual loan offer, with the loan debt not required to be paid off
right away. This process lead to reverse loan offers popping up all over the country.
Over the next 30 years or so the U.S. Department of Housing and Urban Development (HUD) got
involved in the reverse mortgage process by creating their own programs to assist homeowners in need,
one of them being the jumbo reverse-loan program. Today’s reverse loans are given to older people on fixed incomes to assist with retirement expenses. So, if you are at least 62 years of age, you may apply for one.
When you borrow money from a lender in a traditional way you will typically be given all of the
money you borrow up from. You will then be expected to pay that money back in small monthly
increments. A loan that is “reversed” will give you monthly payments or one single large payment,
depending on how you choose to collect the money. Then you can choose when and how to repay the
money with certain limitations.
There are lots of reverse mortgage disadvantages and advantages. One advantage is that you can use
the money you receive to do anything you wish to do. You can pay off medical debts, perform property
maintenance, or use the money in other ways to make your life as a retiree easier. There are no major
stipulations regarding how the money can be spent. In fact, you don’t have to spend it at all. You can
choose to save it, if you wish.
When considering reverse mortgage pros and cons you should know that you will have no monthly
bills from your lender. Instead, it will be up to you when you repay the loan debt. Your lender will not
require full payment until you no longer live in the home. Therefore, you can maintain ownership of
your house for as long as you like without fear of eviction.
Among the things you should keep in mind when considering reverse mortgage advantages and
disadvantages is how it will affect the future of your heirs and loved ones. If you receive money from a
lender through this process then it can potentially have a negative impact on your family, eventually.
First, any family members who live with you, such as your spouse, will not be legally entitled to stay in
the home after your death or if you move into an elderly care facility or other residence unless they pay
your loan balance.
The second way in which a reverse mortgage can impact your family is that the lender can sell your
home if you move out of it without paying the mortgage balance or you pass away and your family
does not pay the balance. Therefore, you should not enter into such a legal agreement if you intend to
leave your home to your children or other heirs.
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