Because a cash-out finance requires the homeowner to make monthly payment
back to the lender, which may sort of defeat the purpose.
Further, reverse
mortgage funds are tax-free.
With a reverse mortgage, the lender agrees to pay
the homeowner a certain amount of money wither in a lump sum or in installment
payments in exchange for equity in their home. The home owner doesn't have to
qualify for the mortgage from a credit or income perspective but they do need to
be at least 62 years old of age. The homeowner never has to pay it back and
doesn't "sell" the home to the reverse mortgage lender. The lender gets their
loan back when the property is sold after the homeowner dies or when the
homeowner moves to a different house. All loan proceeds due the lender get
satisfied at that time, not before.
That's what make reverse mortgage lending "odd" in the sense that it's
certainly a mortgage but doesn't act like one. Since there are no payment made
from the homeowner, then there is no such thing as a foreclosure or delinquency,
and title doesn't change hands. The homeowner doesn't sell the property to the
lender; It's simply an advance on the equity of the home, plus interest. There
are closing costs involved, and those costs are going to be somewhat higher than
for a conventional refinance, you can include those with your mortgage just
like a regular refinance. You need to sit down with a reverse mortgage loan
officer who will detail the plans available to you and answer any questions you
may have.
Reverse mortgage are catching on more and more but they have really been
around for quite some time. I think the reason why they never caught on before
is that the loans at first glance appeared just to be away to take property away
from grandma and her heirs. But that's not the case in any sense. Maybe if the
industry could find some other name for them besides "reverse mortgage" they
might find acceptance a lot quicker. But really they are not a bad deal at all.
Just make sure you understand everything before jumping into it.
