A reverse mortgage is a valuable retirement planning tool that can increase retired income flows by using your greatest asset: your home. A reverse mortgage allows homeowners to borrow against their home’s equity while still maintaining ownership of the home.
The best part of a reverse mortgage is that, unlike conventional mortgages, there are no payments involved. Instead, the lender makes payments to the borrower, either through a single payment, monthly payments, or a line of credit.
The reverse mortgage is paid when the borrower dies, permanently moves out of the residence, or the property is sold. Instead of paying the monthly bill and the value of your growing house, the bank pays you monthly, and equity can shrink. It is important to know that you must be 62 to qualify.
How can a reverse mortgage benefit me?
A reverse mortgage can be a powerful source of funding for people who need to increase their income to be comfortable in retirement. The biggest personal asset most retirees own is their home. In many cases, a retiree’s house is paid. A reverse mortgage increases income without increasing monthly payments and allows a retiree to stay in your home.
The amount you will be eligible to receive is based on several things, most importantly, your home’s value, age, and interest rates. You will be eligible to receive more money the older you are, the better your house is, and the current interest rates are lower.
The negative aspects of reverse mortgages
One of the negative aspects of a reverse mortgage is the costs involved. All mortgages have costs, but they invest in mortgage rates, which may include the interest rate, the loan formalization fee, mortgage insurance rate, appraisal fee, title insurance fees, and other closing costs, which are very high compared to a traditional mortgage. Costs vary but can be as high as $ 30,000 or $ 40,000. This cost is not paid out of pocket but rolled into the loan.
Another potential problem to consider is the obligation to repay the loan if you must move permanently out of the house. This may not sound like a problem now, but if you ever have to enter a full-time care center, the loan will be due if you left your home for a year or more.
The final disadvantage to the reverse mortgage affects your estate. The reverse mortgage will almost always lower your home’s value, which will leave less money to your heirs.
Reverse mortgage myths – and the truth
Misconceptions about reverse mortgages can cause owners to avoid consideration of these complex loans. Or, eligible seniors could proceed hastily without realizing all the possible repercussions of their financial decisions. Here are some misconceptions and realities about this real estate option.
- Myth: The lender takes the title of the house.
- Truth: You still retain the ownership of your home. The reverse mortgage is just a lien against the property.
- Myth: The loan may be more than the value of the property. You or your heirs the survival of a large bill when you finally leave your home.
- Truth: A reverse mortgage is a “no recourse” loan, which means that you, your heirs, or your estate will never have to pay more than the appraised value of the home upon loan expiration.
- Myth: You can not get a reverse mortgage if you currently have a conventional mortgage.
- Truth: Although this is true, you can get a setback if you use the proceeds to pay off your existing mortgage at closing.
- Myth: A reverse mortgage can cause you to be evicted from your home.
- Truth: You leave your house when you choose. No one is going to force you from home. The reverse mortgage is not expected until your home is no longer your primary residence.