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What You Should Know About Getting a Reverse Mortgage in Arizona

A reverse mortgage allows property owners to use their home equity as security, hence access the unencumbered value of the property. In that regard, a reverse mortgage Arizona can be a valuable retirement plan enabling a retiree to increase the income streams while still maintaining property ownership.

Unlike the conventional home loan, the reverse mortgage is repaid upon the demise of the borrower, or if the borrower breaches the reverse mortgage terms and conditions. The reverse mortgage comes with certain advantages and disadvantages. However, before we look at the advantages and disadvantages of reverse mortgage AZ, let us review how the reverse mortgage Arizona works.

How Does Reverse Mortgage Work?

For a regular home loan, the borrower will pay the lender monthly repayments to complete the purchase of a property. However, with the reverse mortgage in Arizona, the borrower is receiving a loan in which the lender pays the borrower.

The reverse mortgage allows the homeowner to withdraw part or whole of property equity converting it into payments from the mortgage lender. Think of reverse mortgage as some sort of an advance payment on the home equity.

With a reverse mortgage, the borrower retains the title to the home. Upon the demise of the last surviving borrower, the lender is allowed to sell the property and recover the borrowed amount in full. Note that there are no monthly repayments to the borrower, and the amount is usually tax-free. In addition, the reverse mortgage does not affect the borrower’s medical benefits or social security in any way.

Before we look at the pros and cons of a reverse mortgage, here are important considerations to bear in mind when it comes to reverse mortgage.

  • Reverse mortgage fees and other costs

The reverse mortgage lender will charge the borrower an origination fee and closing costs. In addition, the borrower pays reverse mortgage servicing fees over the life of the mortgage. In the case of a federal insured HECM, reverse mortgage borrower is expected to pay the mortgage insurance premium.

  • The amount owed increases overtime

The reverse mortgage is advanced at varying rates. The interest charged is added to the balance that is owed each month. In that regard, the amount owed by the borrower increases over time as the interest on the loan adds up.

  • Interest Rates Change Overtime

Various reverse mortgages feature variable rates. The interest rates are tied to the financial index and change with the market. The varying interest loans tend to provide additional options on how the borrower gets the money through the reverse mortgage.

  • What Happens to a Surviving Spouse?

With the HECM loan, if the spouse does not sign the loan application documents, the spouse might continue living in the home even after the demise of the borrower. This is applicable under the condition that the borrower continues maintaining the property and pays the related taxes and home insurance.

At this point, you have gained a proper understanding of how a reverse mortgage works. Further, let us review the pros and cons of Reverse mortgage.

What are the Pros of Reverse Mortgage Arizona?

The main advantage of a reverse mortgage is that the borrower can use the amount to repay any outstanding traditional mortgage balance, while still maintaining the property title.

This shows that the reverse mortgage is an ideal way of increasing cash inflows, especially at the retirement age.

The other key benefits of a reverse mortgage include:

  • Reverse Mortgage allows Borrower Flexibility: There is no limitation on how to spend the amount borrowed under Reverse mortgage Arizona
  • Allows Borrower to Stay at Home while Improving the Immediate Finances: As illustrated herein, the borrower reserves the right of property ownership.
  • A Lower Risk of Default: Unlike the traditional home mortgage, your home cannot be sold by the lender for reasons of defaulting on monthly mortgage repayments
  • Provides Flexible Payment Terms: Depending on the loan type chosen, the borrower receives a reverse mortgage loan in either a lump sum, annuity, credit line, or a combination of either of these methods.
  • Tax-Free: The monies from a reverse mortgage remain tax-free. This is regardless of whether the borrower received a lump sum or a fixed payment.

We have outlined the pros associated with the reverse mortgage AZ. Anything that has pros, comes with its own set of cons. So what are some of the disadvantages of a reverse mortgage?

Cons of reverse mortgage include:

  • Compared to the traditional home loans, the reverse mortgage features higher initial setup fees.
  • The reverse mortgage comes with ongoing insurance charges
  • The amount under a reverse mortgage becomes due if the borrower dies, or leaves the home permanently
  • It comes with less equity for the heirs

We have looked at the advantages and the disadvantages associated with a reverse mortgage. Are you considering a reverse mortgage to help finance your retirement? Talk to a qualified mortgage broker today.

 

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