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Mortgage: An Overview (Part 2 of 5)
Mortgages - An Overview (2): Reverse Mortgages
by Joseph Hughes
Reverse Mortgages have generated interest recently because they allow an older person to tap into the equity of his home. To qualify for a reverse mortgage, the borrower must be at least 62 and live in the home that will be the security for the loan. The reverse mortgage offers several advantages: the borrower receives money without selling his home or taking out a loan and, instead of making monthly payments, the borrower will receive monthly payments.
It allows the person to remain in his house as long as he is able. But the cost of getting a reverse mortgage can be a drawback. Whichever typeand there are several typesof reverse mortgage is chosen, the loan fee will probably be about three points, plus other closing costs. That can be expensive. Another drawback to a reverse mortgage is that the loan must be paid off within 12 months of the death of the borrower or the time he moves out of the house. This stipulation may put the heirs in a tenuous position. . .
For older homeowners who need cash, there are alternatives. The easiest one is a Home Equity Line of Credit (HELOC). This permits the borrower to draw down money when needed and pay interest only on the amount that is owed. Most importantly, the costs are minimal. Many banks have no charge for HELOCs. They are usually tied to the prime rate. The interest rate on the HELOC will move up and down as the prime rate changes.