Common misconceptions about reverse mortgage

# 1: Lender owns your home - False

This is the biggest misconception about reverse mortgage. Borrower owns the home as long as the home is their primary residence. Borrower's need to pay back the loan, when they leave the home.

# 2: Borrower can end up owing more than the value of the home - false

One of the biggest advantage of reverse mortgage is that the borrower can never owe more than the home's value even if the borrower has borrowed more than the value of the home.

# 3: Borrower's home must be debt free - false

It is not necessary that your home must be debt free or there can't be any mortgage on the home. Borrowers can go for reverse mortgage as long as the debt can be paid with some part or all of the funds of the reverse mortgage.

# 4: There are restrictions on the use of money obtained from reverse mortgage - false

There are no restrictions on the use of the funds. You can use the funds for a holiday, paying your debts, paying college fees of your children, anything.

Things you should consider before applying for Reverse Mortgage

As you all know, Reverse Mortgage is a loan provided to senior citizens against their residential property and the home equity is converted into the cash. But before applying for FHA insured Reverse Mortgage you must consider the following points:

• First of all, you should go for a counselling. It acts as consumer protection and requires a third party to understand the program completely. You can contact local HUD-approved counselling agencies or national agencies and can be done on phone or face to face.

• You should consider for other options apart from a Reverse Mortgage. Because these loans are costly, and if you intend to leave the home in few years then it is advisable not to go for a Reverse Mortgage.

• Usually Reverse Mortgage does not affect your social security benefits. But, the fund you receive must be used in the same calender month only. If you retain the funds then it will counted as assets and can affect your Medicaid and social security benefits.

• You can apply for Reverse Mortgage even if you already have a mortgage but the money you recieve should be used to pay off the mortgage first as Reverse Mortgage must be in first lien position.
  

Advantages and disadvantages of Second Mortgage

Second Mortgage also known as home equity loan is simply an additional loan against your property. Lenders consider these loans as riskier because first mortgage should be paid so these loans are provided on high interest rates.

ADVANTAGES

• You can get cash easily as these loans are provided on your home equity.
• Funds you receive can be used for any purpose.
• Second Mortgage does not affect your first mortgage.
• You get tax benefit on the interest you pay on the second mortgage.

DISADVANTAGES

• If you default on the payments, the the lender of the second mortgage can foreclose your home.
• Lenders charge higher interest rates as compared to first mortgage.
• You must have good credit scores to be applicable for the second mortgage.
  

Second Mortgage

Second Mortgage is another loan against your property. Second Mortgage proves to be more risky for the lenders because if the loan goes into default then the first or original mortgage will be payed off first. Second Mortgages are available on higher interest rates as compared to first mortgage. When you apply for a second mortgage, lenders look for the following points:

• Equity on the first mortgage
• your credit score
• your employment

These loans are useful when you need a lot of money. These mortgages allow for higher loan as loan against a home is considered safe. Time period for a second mortgage may vary but its is usually for 30 years but repayment may be low. Second Mortgage can turn into a foreclosure if you default on the loan payment.

Reverse Mortgages

Reverse Mortgage is a loan available to senior citizens who are above 62 years of age and owns a home with home equity. This home equity is released as one lump sum amount or multiple payments according to the borrower's choice.

Reverse Mortgages are really beneficial as it provides financial stability to senior citizens. The loan is paid back when the home is sold, the owner dies or the owner moves away. To qualify for the loan, there is no minimum income or credit required but you must qualify on other factors. Amount of money that can be borrowed depends on the following factors.

• Age of the borrower (older the senior, the more money he/she can borrow)
• Interest rate
• Appraised value of the home.

All these factors together determine the amount of money that can be borrowed by the seniors. Before applying for the loan you can consult FHA or HUD as they can provide you with proper guidance.