From ARM to Reverse Mortgage

Do you still have an adjustable-rate mortgage (ARM) that you are making monthly payments on? While many people have chosen to avoid ARMs over the past couple years, these loans still exist and there are plenty of homeowners who want them. But if you are concerned about your ARM eventually resetting to a higher rate and have a lot of home equity, a reverse loan might change your financial situation.

Negative Amortization

Reverse mortgages, like interest-only ARMs, have balances that grow over time, or negative amortization. That’s because reverse loans don’t have to be repaid until you move or die, allowing you to keep more of your income for other purposes. Reverse home mortgages also have interest charges that accrue.

Pros and Cons of Reverse Mortgages

You may be wondering why you would want to give up hard-earned home equity. That is certainly a personal decision that only you can make. But among the reasons many seniors choose reverse loans is the relative ease of qualifying since any homeowner over 62 can apply and there is no credit-qualifying. Reverse mortgage proceeds also can be used for any purpose, such as medical costs, traveling, or home repairs.

Some of the drawbacks to reverse home mortgages include higher fees than with traditional mortgages and a possibility that your heirs may have to deal with the loan if you pass away.

The best way to decide if a reverse home mortgage can help you get out of an ARM is to meet with a counselor. Reverse mortgage counselors can fill you in on reverse mortgage guidelines and review your financial situation.

This entry was posted on Thursday, June 3rd, 2010 at 12:10 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.