If you are looking for a source of fund and you are a senior citizen at least 62 years of age, you may want to take a look at the possibility of making a loan that is called a Reverse Mortgage.
What is a Reverse Mortgage
Reverse mortgage is the opposite of the typical home mortgage where you make a monthly amortization payment for a certain number of years. In a reverse mortgage loan, you do not need to make a monthly payment, as a matter of fact, YOU do not even need to repay it.
Reverse mortgage is sometimes called a lifetime mortgage. You may not repay the mortgage for the rest of your life as long as you do not move to another place or sell the mortgaged property.
Are you considering a reverse mortgage? It can be a good idea but it can also be an expensive trap. Essentially a reverse mortgage will allow the home owner basically to sell their home back to the bank; while of course continuing to live there. Usually you would have to be 62 years or older to qualify.
The money you may get from a reverse mortgage may come in a lump sum, a monthly payment or a line of credit. Usually the interest rates on these loans are set at a standard; you may want to look into what your area offers. Probably, you won’t have to shop around as much as you would for a mortgage when you first bought your home, but it is still best to consider all your options. Talking about options before you decide that you want a reverse mortgage you must ask your self why? Is putting yourself at a financial risk at this age(no offence) really worth it.
I mean, why are you really trying to hang on to your home anyway, for the kids!? You must ask your self these questions because if that is your only reason for keeping your home you should speak to your children or grandchildren, perhaps they don’t want the family home or maybe they could benefit from the money now as opposed to after you’re gone. Consider why your hanging on to your home, is it worth it or would you benefit from selling and downsizing instead, leaving you with money to use now and put away for the family.
Ok so your still considering a reverse mortgage well no problem just make sure you read the fine print so to speak, don’t sign anything unless you are completely sure it is what you want to do. You can also consider talking with a financial specialist or your current financial consultant. A reverse mortgage can have benefits yes, it’s a quick way to get some cash, but it can be also a financial risk for those who are living off of savings and or pensions. Consider why you want to reverse your mortgage and is you reason enough to risk your home, talk to your family and get some advice, professional advice and then make your choice. Its your home and maybe it’s better to give it up then risk losing it all together. And just because you get a reverse mortgage doesn’t mean you will cause your self financial stress but the possibility is always there.
Is a Reverse Mortgage Right for You?
Understanding reverse mortgages pros & cons is extremely important before making a decision. Reverse mortgages were designed to help older Americans who own their homes by paying cash for the equity in their homes. Elderly people often need cash and reverse mortgages is one way for them to "cash in" on the investment they’ve made by owning their home.
But while this sounds good, there are two sides to every story and you need to consider both the pros and cons before making a decision about reverse mortgages.
Of course the mortgage has to be paid eventurally by your heirs by either selling the property or by entering into another form of mortgage, like the typical home equity mortgage.
Reverse Mortgage Pros:
There can be benefits for some seniors with a lot of home equity but a low income. After all, you can’t take that equity with you, and it can only be realized with some sort of transaction. If you need more income to live, and still want to live in your home. a reverse mortgage can be a good tool to help you get a comfortable income without impacting your ability to stay in your home as long as you want to.
In addition, seniors must have mandatory counseling. This comes from HUD approved counselors who do not benefit from the loan transaction. Sometimes these counselors will suggest other options, and sometimes they will help the potential borrowers decide that this is a good idea for them.
Reverse Mortgage Cons:
Some lenders gloss over the whole story when they sell these products. Make sure you understand that you will be running up more of an obligation than just the loan amount
The upfront load can be very high. As with regular mortgages, there will be origination fees, points, and interest. The amount of these costs can vary, so it is important to shop around.
Borrowers are still responsible for taxes, home insurance, and repairs. They may also need PMI to protect the lender against default or not getting back the full value of the loan later.
The cash could prevent low income seniors for qualifying for some government programs, like Medicaid. Homes are protected, but income from a reverse mortgage is not protected.
Because of the high fees, these are not considered good short term solutions. They should usually be considered when the borrowers are sure they want to stay in their home for years. They can also reduce the home equity that may be passed on to heirs.
Tips: If you’re considering a reverse mortgage, continue to educate yourself before making a decision. Before seniors can apply for reverse mortgages, they are required to attend counseling to ensure they understand everything that is involved with a reverse mortgage. Getting a reverse mortgage is a complex loan process and it’s important that you understand reverse mortgage advantages/disadvantages before making decisions.