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What is a Reverse Mortgage?

Reverse MortgageYou have probably seen the infomercials. They advertise the benefits of a reverse homeowner designed just for older homeowners that didn’t save enough to retire comfortably. Reverse mortgages are a way for people to borrow against their home’s existing value—but the process can be rather confusing.

Reverse mortgages do add income to an elderly individual or couple’s monthly finances, but there are a lot of frauds and scams out there that consumers should also be on the lookout for when considering these types of real estate deals.

How Reverse Mortgages Work – And Why They’re Different

With a normal home equity loan, the owner makes payments to the bank on a monthly basis as part of their loan obligation. With a reverse mortgage, the payments are only made after the homeowner dies or sells the home later on. This is ideal for older homeowners who need cash to pay off the mortgage or pay for their increasing health care costs.

What is important to note here is that unlike a home equity loan—which increases the equity back into your home with each successful payment you make—a reverse mortgage can reduce the equity of your home. Therefore, your descendants may end up owing after you pass away—especially if the value of your home decreasing significantly.

How Are Reverse Mortgages Paid?

Reverse mortgages come with extreme fees and costs that are not readily advertised. The compounding interest makes these one of the most dangerous loans. Homeowners should only use them in extreme situations where they are willing to take on the risk.

If a borrower does not pay their property taxes or maintain homeowners insurance, then the loan could lead to foreclosure by the reverse mortgage company. Also, when the borrower dies or the home is sold, the mortgage loan is due for payment. Also, if the homeowner moves out of the house for 12 or more consecutive months, then the lender will typically require a full payment. So, if the owner is sent to a nursing home facility, they could be required to pay off their loan—even if they legally own the house.

Is a Reverse Mortgage Right for You?

Most lenders offering the product will try to sell this mortgage to anyone, but financial advisors would tell you to only use a reverse mortgage if you are in an extreme financial situation and you are at risk of losing your home without some sort of supplemental income.

Need Assistance with Your Escrow?

Whether you have a reverse mortgage or just a regular mortgage, Miami Title Company at  Title Lab can assist you with your escrow. We can set up an escrow account and manage the funds for your property tax and homeowner’s insurance so that you don’t risk losing your home to a lender.

Call us today at 305-440-4150 to learn more about us or our escrow services.