5 Facts Why Reverse Mortgage Cost Will Always Be Covered

Have you also heard rumours, that the reverse mortgage cost can grow bigger than the value of your home? And that a senior or his heir must pay a part of the reverse loan from his own wallet? These are myths, so read the facts!

These myths or rumours grow easily, because the reverse mortgage cost stay hidden during the running time and because a senior has not to pay back anything on a monthly basis. One thing may be, that the reverse mortgages are complicated products and some seniors have honestly difficulties to understand all the details, including the list of the reverse mortgage costs.

1. The Basic Target Of The Reverse Mortgage Loan.

When the Reagan administration decided to allow the launch of the reverse loans in America, the target was to help seniors, who are cash poor, but equity rich, i.e. seniors, who had low fixed monthly incomes, but who had a need for an extra income owing to the increased living costs, like the medical bills or home repair.

In a way, the system was similar to the social security, but now the seniors had to pay the bills, the reverse mortgage cost, by themselves. Because these seniors had assets, which were in the equities of their homes, the administration created a system, a loan, which could release this equity and turn it into cash money.

2. The Reverse Home Loan Is Not A Personal Loan.

This is the most important thing, when you think the reverse mortgage cost. The reverse loan is a loan, which is guaranteed by the home equity and the obligatory mortgage insurance. This means, that a senior, you, has no personal risk, when you think about the reverse mortgage cost. Of course you are interested about how much you, or your heirs, will get after the closing costs.

3. The Heirs Are Protected.

A senior borrower can never borrow 100 % of the home equity. How much he or she will get depends on the age of the borrower, the interest rate and the appraised value of the home. The ceiling is always $ 625.500. The home ownership remains at the borrower, which means, that the home price increases benefit the borrower and thus will be added to the home equity.

4. What Happens, If The Home Prices Drop Dramatically?

During this financial crises the home prices have fallen by tens of percentage points, which is very exceptional. However, it happened and many seniors think, how this influenced on the positions of the senior borrowers. Actually the impact is close to zero. The only element in the formula may have been the interest rate in a case, if a senior has chosen a variable rate. Otherwise, what is agreed is agreed.

5. The Summary.

As you can see from this article, it is important to understand the basic system of the reverse mortgage cost. This loan is not a personal loan, which simply means, that no human being will be forced to pay a part of it. That is just impossible. Even in the case, when a borrower has not paid the property insurances and taxes. The home equity and the reverse mortgage insurance are the sources of the money, which will cover the costs.

When you next time hear about the rumours, how a senior had to pay a part of the reverse loan, make your comment immediately and say, that it just cannot be possible, because a reverse loan is not a personal loan.