The Center For Debt Management
Debt Relief

Credit and Financing

Home Mortgage

Home Refinance

Second Mortgage

Reverse Mortgages

Home Equity Loans

VA Home Loans

FHA Loans


Credit Cards

Reward Cards

Debit Cards


Cash Advances

Payday Loans

Personal Loans


Auto Loans

Motorcycle Loans

Auto Refinance


Consolidation Loans

SubPrime Loans

Military Loans

Student Loans

Business Loans


Mortgage Rates

Interest Rates

Credit Report


Financial Library

Financial Bookstore


 

Features of
Reverse Mortgages

Common Features of Reverse Mortgage

Below are some points to consider about reverse mortgages.

  • Reverse mortgages are rising-debt loans. This means that the interest is added to the principal loan balance each month, because it is not paid on a current basis. Therefore, the total amount of interest you owe increases significantly with time as the interest compounds.

  • All three plans (FHA-insured, lender-insured, and uninsured) charge origination fees and closing costs. Insured plans also charge insurance premiums, and some impose mortgage servicing charges. Your lender may permit you to finance these costs so you will not have to pay for them in cash. But remember these costs will be added to your loan amount.

  • Reverse mortgages use up some or all of the equity in your home, leaving fewer assets for you and your heirs in the future.

  • You generally can request a loan advance at closing that is substantially larger than the rest of your payments.

  • Your legal obligation to pay back the loan is limited by the value of your home at the time the loan is repaid. This could include increases in the value (appreciation) of your home after your loan begins.

  • Reverse mortgage loan advances are nontaxable. Further, they do not affect your Social Security or Medicare benefits. If you receive Supplemental Security Income, reverse mortgage advances do not affect your benefits as long as you spend them within the month you receive them. This is true in most states for Medicaid benefits also. When in doubt, check with a benefits specialist at your local area agency on aging or legal services office.

  • Some plans provide for fixed rate interest. Others involve adjustable rates that change over the loan term based upon market conditions.

  • Interest on reverse mortgages is not deductible for income tax purposes until you pay off all or part of your total reverse mortgage debt.

How Reverse Mortgages Differ

This section describes how the three types of reverse mortgages, FHA-insured, lender-insured, and uninsure, vary according to their costs and terms. Although the FHA and lender-insured plans appear similar, important differences exist. This section also discusses advantages and drawbacks of each loan type.

FHA-insured. This plan offers several reverse mortgage payment options. You may receive monthly loan advances for a fixed term or for as long as you live in the home, a line of credit, or monthly loan advances plus a line of credit. This reverse mortgage is not due as long as you live in your home. With the line of credit option, you may draw amounts as you need them over time. Closing costs, a mortgage insurance premium and sometimes a monthly servicing fee is required. Interest is charged at an adjustable rate on your loan balance; any interest rate changes do not affect the monthly payment, but rather how quickly the loan balance grows over time.

The FHA-insured reverse mortgage permits changes in payment options at little cost. This plan also protects you by guaranteeing that loan advances will continue to be made to you if a lender defaults. However, FHA-insured reverse mortgages may provide smaller loan advances than lender-insured plans. Also, FHA loan costs may be greater than uninsured plans.

Lender-insured. These reverse mortgages offer monthly loan advances or monthly loan advances plus a line of credit for as long as you live in your home. Interest may be assessed at a fixed rate or an adjustable rate, and additional loan costs can include a mortgage insurance premium (which may be fixed or variable) and other loan fees.

Loan advances from a lender-insured plan may be larger than those provided by FHA-insured plans. Lender-insured reverse mortgages also may allow you to mortgage less than the full value of your home, thus preserving home equity for later use by you or your heirs. However, these loans may involve greater loan costs than FHA-insured, or uninsured loans. Higher costs mean that your loan balance grows faster, leaving you with less equity over time.

Some lender-insured plans include an annuity that continues making monthly payments to you even if you sell your home and move. The security of these payments depends on the financial strength of the company providing them, so be sure to check the financial ratings of that company. Annuity payments may be taxable and affect your eligibility for Supplemental Security Income and Medicaid. These "reverse annuity mortgages" may also include additional charges based on increases in the value of your home during the term of your loan.

Uninsured. This reverse mortgage is dramatically different from FHA and lender-insured RMs. An uninsured plan provides monthly loan advances for a fixed term only — a definite number of years that you select when you first take out the loan. Your loan balance becomes due and payable when the loan advances stop. Interest is usually set at a fixed interest rate and no mortgage insurance premium is required.

If you consider an uninsured reverse mortgage, carefully think about the amount of money you need monthly; how many years you may need the money; how you will repay the loan when it comes due; and how much remaining equity you will need after paying off the loan.

If you have short-term but substantial cash needs, the uninsured reverse mortgage can provide a greater monthly advance than the other plans. However, because you must pay back the loan by a specific date, it is important for you to have a source of repayment. If you are unable to repay the loan, you may have to sell your home and move.

Reverse Mortgage Safeguards

One of the best protections you have with reverse mortgages is the Federal Truth in Lending Act, which requires lenders to inform you about the plan's terms and costs. Be sure you understand them before signing. Among other information, lenders must disclose the Annual Percentage Rate (APR) and payment terms. On plans with adjustable rates, lenders must provide specific information about the variable rate feature. On plans with credit lines, lenders also must inform you of any charges to open and use the account, such as an appraisal, a credit report, or attorney's fees.


 
Over 2,000 Pages of Content
Center For Debt Management

Center For Debt Management

The Center For Debt Management

Helping Consumers Save Money and Reduce Debt Is Our Only Business!

We invite you to explore the sectors listed below. We promise that you'll find exceptional values, offers and resources to reduce your living expenses and to enjoy life! But First—if you're over-your-head in debt—get a free no-obligation debt consultation right now!
 


Debt Management and Financial Services! The Internet's oldest and most comprehensive debt management agency! Resources for debt management, consumer credit counseling, debt consolidation loans, debt settlements, legal aid, financial aid, credit and financing, credit reports, budget software, insurance, income resources, tax assistance and more. Get out of Debt! Call Now — 1800DEBT.COM

Established In 1989 and Serving The Online Community Since 1992!

Get Out Of Debt: Call 1800Debt.com

Center For Debt Management