subject: Reverse Mortgage Loan - Does A Senior Understand It [print this page] . It is very important to get the full picture about the reverse mortgage loan details, before the decision.
The danger is, that a senior will make the decision quickly, because there is a new money source waiting. The money seems to come from thin air without the need to pay back every month. If a senior will pay back his usual mortgage, that will still add amount of the monthly disposable money.
1. Where Does The Money Come From?
No, the money does not come from the thin air and yes, a borrower has to pay back everything plus the fees and the interests. The money comes from the home equity, i.e. it is the money a borrower once paid in the form of the mortgage. Now this equity will be used for the monthly payments.
2. What Are The Costs?
There are two kind of costs, the fees and the interests. Some of the fees are so called upfront costs and some collected during the loan running time. The interests can be variable or fixed ones. A borrower can get the full list of costs from the lender or from the federal counselor, so there will not be any surprises. Of course, if he has chosen a variable interest rate, he has to follow the development.
3. Can The Heirs Get Anything?
The reverse mortgage loan will be paid back, when the loan will be closed. This happens, when the borrower will move away, sell the home or pass away. Then the home will be sold and the loan capital, interests and the costs will be deducted from the selling price and paid away. The heirs will get all the saved money, but in no case they have to pay something.
4. Can I Owe More Than The Home Equity?
The only guarantee for the reverse mortgage loan is the home equity. That is why the lender is not interested about the income statement nor about the credit score. If the home selling price will not cover the whole amount of the costs, the obligatory mortgage insurance will be used. But in no case the other assets of the borrower will be used to pay the reverse loan.
5. How The Variable Interest Rate Will Influence?
The fixed interest rate is the same during the whole running time of the loan, but the variable rate will follow the market interest rates. If the rate will increase dramatically, it has no monthly influence on the borrower. It just eats more money from the home equity, when the final payment will be done.
