subject: Reverse Mortgages, How They Behave In The Long Run [print this page] The formula of the reverse mortgages looks simple, you just use an agreed slice from your home equity and thats it. However, the long term formula includes several pros and cons, which you have to take into account, even if you cannot forecast them exactly.
1. The Home Owner Maintains The Ownership.
Despite of the fact, that the reverse mortgages eat the equity of the homes, the ownership still remains with the borrower or borrowers. That means that the market price increases of the properties will become in favour of the owner, not the lender.
The home price increases, which during the long term will happen for sure, add value to the home and to the free home equity. This is important thinking about the calculation in the end of the running time.
2. The Variable Interest Rate Surprises.
If the borrower has taken a fixed interest rate, then it will stay as such during the whole running time. But the variable rate will not. It will follow the benchmark index both upwards and downwards. This can bring nice or bad surprises depending on the development of the economy.
3. The Sad Surprises.
When the lowest age to get the reverse loan is 62, it can happen that soon after the borrower has taken it, he or she will pass away. If the home prices are down and the property is sold, the price may not cover the whole sum of the capital, interests and costs.
Now it would be really bad, if the other assets of a senior would be used to cover a part of the sum owed. However, the mortgage insurance solves this problem. A borrower must take this insurance if he wants to get the reverse loan. It is meant to cover the missing part of the pay back payment in the case, when the home selling price cannot cover the whole sum.
4. A Possibility To Add The Reverse Loan Sum.
The needs of a senior can be changed during a long period of time, so he may need more money from the home equity. If the home price has developed well during the long time, there may be a nice sum of available cash in the equity. A senior has a possibility to use this and to get some extra disposable cash money. It is wise to turn to the bank manager or to the reverse mortgage counselor.
5. Earlier Back Payment.
This alternative means, that the borrower can pay back the whole reverse mortgage earlier, than what has been agreed. The borrower just have to contact the lender and to ask no further draws against the equity. This is an option, when the financial situation of the senior has been changed and he will not anymore need the reverse loan.
