No-cost and low-cost mortgages are available for those homeowners who anticipate moving from their home in the near future. For example, they may select a home equity line of credit, commonly called a “HELOC”, requiring interest-only payments for 10 years. These loans typically have very low (or zero) upfront costs, but the interest rates are usually slightly higher than those of a reverse mortgage. Since monthly payments are required on a HELOC, borrowers need to qualify based on their incomes and credit scores. Often, seniors who may be on a limited fixed income can't get approved for a HELOC for this reason. Reverse mortgages do not require monthly payments and, as a result, income and credit score are not considered as part of the approval process.
I'm sure most of you have heard of a reverse mortgage. I had read about them myself thinking that this could be a good option someday when I'm old and perhaps running out of money in retirement. And frankly, it can be a good option for parents or other seniors who are in the right place in their life and either can't quite retire or are suffering from a cash flow problem. You have to be at least 62 when you obtain a reverse mortgage and you have to have a lot of equity in your home. Companies that specialize in reverse mortgages work with a lot of seniors to either offer them a lump sum of money or offer them a monthly payout. When you get a reverse mortgage, you no longer have to make a payment, which can be quite helpful in reducing your monthly outlay. Since your mortgage payment is usually your largest payment, it can put a senior in a very comfortable financial situation and alleviate their stress. However, you are still responsible for paying the property taxes and insurance on your mortgage. If you do not make those payments, a lien can be placed on the property and you can even be forced into a foreclosure situation if you're unable to keep up with the other housing expenses.
Now here is how the secondary market works. In the good old days absent toxic reverse mortgages, banks held onto their loans and simply kept the in-house interest. But those days are long gone and banks now pool their loans and sell to investors on the secondary market which pays them a premium because of the expected enjoyment of future loan interest. They were packaged almost like mutual funds. Unfortunately, the secondary market is now a dry creek bed. I'm not handing out excuses for our banks, but this is one of the reasons they are not loaning.
There's no arguing that this is one of the most important reverse mortgage disadvantages. Yet, the stark reality is, many people would prefer their family members live easily rather than receive a large inheritance. Furthermore, you can find ways for borrowers to make sure that their heirs inherit the home. As an example, a customer may possibly have a life insurance policy that covers the loan amount. A borrower's heirs may also repay the lender independently or choose to refinance.
Do a little bit of research and see whether the reverse mortgage lender that you are eyeing on is one of the best in the field, so make sure that they will provide you with a home equity conversion mortgage. Also see to it that you eye on a loan mortgage company that is insured directly by the federal government. If your reverse mortgage loan lender is insured by the federal government, they will be able to give you the most reasonable rates for your situation.
I'm not an expert by far, but I think of it like this: In a Reverse Mortgage, you are lending yourself money from the value of your home, with a large up-front fee going to the company administering the loan for you.
Reverse Mortgage actually allows you to cash in the equity of your home, without making your mortgage payments, which provides an immense piece of mind to borrowers with a bad financial situation. This prevents the extra burden to be imposed on your monthly budget. This is the only option that allows the borrowers to use the equity of their home instead of paying handsome cash each month to pay off your UAE Home Loan.