The person who wants to stay in the property for a lifetime and then leave as much equity as possible to his or her children is better off with a tenure loan. The reason is that by borrowing the full amount on the reverse mortgage to buy the annuity, interest will accrue on the total amount borrowed. The amount owed at the death of the borrower will be substantially more than if the money was taken monthly, and if it was taken all up front, the borrower reduces the equity amount that will go to the children. A person who wants to have cash on hand for emergencies but does not need more monthly income would obviously not be interested in the annuity.
There is a problem in reverse mortgage loans that may soon have to be addressed. An increasing number of the homes being taken back by lenders after the borrower moves or dies are in poor condition. There are many theories as to the reasons, but the main one is fairly obvious. Once a borrower believes that his or her home will have no equity, the pride of ownership is lost. Why spend the money to make repairs or repaint? Unless there is an emergency repair needed, you are fixing up someone else's home.
Currently, it is not common for lenders to make inspections or have maintenance agreements specifically for reverse mortgage borrowers, but it may come to that. Reverse mortgages are relatively new. As the baby boomers hit age 62, there will be a dramatic increase in the number of these loans. The maintenance problem will become more serious. If you are getting a reverse mortgage loan, ask your counselor if there are any new maintenance requirements.
Much has been said and written lately about the subprime mortgage. The term is used to describe a loan made to a borrower with a poor credit history. Of course, any loan made to such a borrower has a higher risk of default than a loan to a borrower with good credit.
No. Most of what is written misses the point. The real problem is the type of loan. People who got a mortgage loan other than a fixed rate mortgage were taking the risk that when the mortgage adjusted or was recast, the payment would be more than they could afford.
The advice is the same today. If it is the only way you can buy a home, you may want to take the risk. If it is the only way you qualify for your dream home, though, you are taking an unnecessary risk that is ill-advised. Most who are in trouble today simple did not do their homework, or listened to greedy lenders and mortgage brokers. They did not work out the worst-case scenario and prepare for it by budgeting.
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