Mortgage? Reverse mortgage? Direct Reverse Mortgage? Name it and we will hand it to you in a silver platter. Yes, the business of loans in the Philippines is evidently taking the center stage now.
For instance, reverse mortgage loan seems to be the perfect solution for a retiree with low monthly income, but take time to scrutinize this mortgage type of loan because you can easily see that it is not what it appears to be. For the elders, who usually have their houses as their only property, a reverse mortgage loan is a solution.
A reverse mortgage is one of the many types of loans in the Philippines that allow homeowners to borrow money from lending companies giving their houses as the collateral for the loan. In order to properly weigh-in, whether to apply for a mortgage or not kindly check the several risks of reverse mortgages below.
Imagine how literally risky it is to carry your house at your back because of your reverse mortgage application and all those hidden and upfront costs.
Family Instability Issues when the Borrower Dies. When the borrower dies, the family can either continue living on that house still under a reverse mortgage loan or can pay for the accumulated mortgage by selling the house. The risk is the amount of the house may be lesser or just enough to pay for the mortgage that nothing may be left for the family of the borrower.
Fees. The scenario here is that the lending company lends you a specific amount of money monthly based on the computed home equity. The real thing is this: while you are in a reverse mortgage, you will still spend on the maintenance of the house, property tax, and home insurance. That’s a lot of money spent there from a loan intended to aid your monthly income.
Interest Rates. The interest rates of reverse mortgage loans are way much higher than any of the equity loans in the Philippines. Its upfront costs can increase immediately.
Variable Rates. The rates of reverse mortgage loans in the Philippines are directly affected by its economic status; thus, the time will come that your mortgage rate is higher than the usual.
Exceeding the Equity Loan. There will be no more monthly money for you when you have reached the established home equity amount. You have no choice but to sell the house to pay for the mortgage.
Misdirected Mortgage Loans. A borrower applies for the loan in order to have enough funds during retirement. However, instead of gaining favors, the borrower will be bombarded with a lot of interest rates from the loan like insurance premiums and services fees.
More Complicated and Expensive. Considering the fees incurred before, during, and after the reverse mortgage transaction, it appears that it is way too expensive for someone, especially to a retiree looking for something to augment monthly income.
Low Estate Value. Because you already spent your home equity, naturally your estate value deteriorates.
Loan Processing Fee. The lender can actually charge a loan processing fee and that could mean an additional cost for a borrower like you. It is not going to be a small amount because it actually depends on the lender and the value of your home.
Fixed Loan Terms. In the latter part of the reverse mortgage loans, you realize to add for another borrower or lower the interest rate for your convenience. That is a big no because most lenders do not allow such arrangements.
Now is your only time to decide. Is reverse mortgage loans the answer to your problem or is it another problem coming to your way?
Is a Reverse Mortgage Right for You?
The economy of today is a lot different than it was decades ago, where a person would work until the age of 65 (or younger), retire, and have the peace of mind that their home was paid off and they could easily live off of their retirement savings.
The economic crisis changed this for many retirees and potential retirees, leaving them a bit concerned about their financial security. During this time, a variety of television ads starring famous actors of retiring age started to appear, and the ads were advertising what is known as a reverse mortgage.
Reverse Mortgage Basics
A reverse mortgage allows seniors 62 years of age or older to borrow money against the equity in their home, and this money does not have to be repaid until the borrower passes away or the home is sold.
Reverse mortgages are definitely a nice option for seniors who are looking for extra income during their retirement, and the money can be used for bills, day to day expenses, vacations, or anything the homeowner needs.
However, if there is a mortgage balance or the home is in need of repair, the borrower is required to use the funds to first pay off their mortgage and complete the needed repairs. After that, the funds can be used for anything, as there are no additional set rules for how the money is spent.
In order to qualify for a reverse mortgage loan, the borrower must be 62 years of age or older, the home must be the borrower’s primary residence, and potential borrowers must meet with an approved mortgage counselor before they are allowed to get started with the loan process.
The mortgage counselor will discuss all available options with the borrower and advise on whether or not a reverse mortgage loan is the best course of action. Additionally, there are certain lenders that also require that there are no liens against the home at the time of the application.
Pros and Cons
It is always a good idea to weigh out the pros and cons of a reverse mortgage loan as well. While the funds are definitely a helpful option for seniors who have no retirement income or for some reason are unable to tap into their funds, there are many additional points to consider.
One, the homeowner is required to use a portion of their loan to pay off any existing mortgage, so it is always a good idea to take a realistic look at your finances to see if there are any alternatives.
Additionally, once you obtain the reverse mortgage funds, it may be hard to borrow any more money against your home, except in the case of refinancing the reverse mortgage.
Is a Reverse Mortgage the Right Choice?
So, is a reverse mortgage your best option? It truly all depends on your current financial needs, how much equity you have in your home, and the amount of your current mortgage balance. This is why the requirement of meeting with a counselor beforehand is quite beneficial, as they will discuss your options and advise accordingly.
By meeting with a professional mortgage counselor and taking a look at just how much cash you need in order to feel comfortable and secure, you will be able to decide if a reverse mortgage is the best path to take.