Mortgages
Cash Out Refinance vs a Reverse Mortgage
By
Sep 13, 2005, 18:52

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.