Mortgage vs. Reverse Mortgage

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Each year, millions of people decide to take out regular mortgage loans on their homes for a myriad of reasons. The general requirements for these regular mortgage loans are quite well known and for that reason, many people are comfortable with the fulfillment of them.

However, reverse mortgages are not as commonly seen. Because their unique features are not completely understood by the mainstream media, there have been some misconceptions that have emerged that can lead consumers to think that this type of mortgage is vastly different from traditional mortgage loans. The reality of it is that both types of mortgage loans have quite a bit in common. The difference is that reverse mortgages have a few more distinct features that are specifically for seniors who are looking for a way to improve the financial issues they might be facing.

Common Requirements for Reverse and Traditional Mortgage Loans

Because there has been a dearth of education regarding how a reverse mortgage works, as well as how they are different from other types of home equity loans, many people have described what you have to do in order to qualify for a reverse mortgage as pitfalls or drawbacks. In truth, the requirements for a reverse mortgage are typically the same requirements that you have to meet for traditional mortgages. These requirements include things like the borrower still being liable to pay for things like:

When you own a home, regardless of your mortgage status, you still have to pay for things like property taxes and homeowner’s insurance. If you fail to fulfill these obligations, regardless of the type of home loan you have, you will find yourself facing foreclosure.

There is however, a difference in that with a traditional mortgage, it is not necessarily a requirement that you keep up with any home repairs throughout the length of the loan. With a reverse mortgage though, this is a requirement that needs to be met if the borrower doesn’t want to face being foreclosed on.

What You Can Borrow

With a traditional mortgage, you typically will have to make a down payment that will be a certain percentage of the loan. Then, you can borrow up to the amount of the value of the home. If your credit is good enough. With a reverse mortgage, what you can borrow will depend on the equity that you have built up in your home. Also, that amount is scheduled to increase this year.

Costs and Fees

Your traditional types of mortgages are known to require closing costs and various fees. Reverse mortgages have the same requirements. Both types of loans require things such as closing costs, lender service fees, and loan origination fees. Because the closing costs of both types of loans include quite a few of the same types of fees, the total costs are often similar. You might see such typical fees as:

  • Appraisals
  • Pest inspections
  • Credit report
  • Survey fees
  • Flood certification
  • Counseling fee
  • Courier fees
  • Special Assessment search
  • Escrow/settlement/closing
  • Name search
  • Title search
  • County Mortgage Registration Tax
  • Title exam
  • Recording fees
  • Document preparation
  • Endorsements
  • Title insurance

There are Some Advantages

Yes, traditional mortgages are more commonly seen. However, don’t count a reverse mortgage out just because of that. Reverse mortgages offer seniors benefits that traditional mortgages just don’t. These loans are quite unique and have features that were designed specifically to be able to cater to borrowers who are age 62 and older.

Deferred Payment

This is one of the best benefits of a reverse mortgage. Traditional types of mortgages make you have to pay them back in monthly installments for the life of the loan. This is not so with a reverse mortgage. Instead, the loan is to be repaid either when the borrower dies or moves out of the home. This allows seniors who might be on a fixed income to be better able to live comfortably and have more control over their financial situation. However, if the borrower dies, the heirs have the choice to either pay back the loan or let the lender take possession of the home. This is a non – recourse loan too, which means that none of the heirs’ assets can be seized in order to repay the loan.

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