When you reach retirement age, it’s possible to encounter new sets of problems. One of them could be financial challenges, which could be difficult to hurdle, especially when you’re a senior citizen. This situation could push some to reevaluate their belongings in accordance with their needs, including assessing their belongings.
Typically, one of the major assets that seniors have within their reach is their homes. And if they’re considering using it to apply for a loan, then perhaps a reverse mortgage is the ideal option for senior citizens to help them hurdle their financial setbacks.
What Are Reverse Mortgages?
A reverse mortgage is a type of loan specifically tailored for senior citizens aged 62 and up. This kind of mortgage loan allows homeowners to borrow against the value of their homes, meaning your home will be held as collateral. In return, you will receive a lump sum amount equivalent or a percentage of your home’s value. Then, it is the lender who ‘repays’ you, the borrower, a fixed monthly payment until the maturity of the loan.
Reasons Why Reverse Mortgages Saves You Money
Now that you know what reverse mortgages are, here are some reasons you can save more money during your retirement period if you availed of one.
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- Roll On Costs
Reverse mortgages still have other costs that come with the loan. However, lenders will allow you to include these costs into the loan already. This way, you don’t have to shell out money to pay for these additional costs, reducing the amount you need to pay. Thus, it helps with your current cash flow.
Here are some examples of these costs:
- Mortgage Insurance Premiums – Even though you’re availing of a reverse mortgage, one requirement of the lender is putting insurance on the mortgage. This will initially include 2%, then an additional 0.5% of the total outstanding balance thereafter.
- Servicing Fees – Lenders usually charge monthly service fees to pay for monitoring the loan throughout its existence.
- Third-party Fees – When availing of a reverse mortgage, you’re essentially putting up your land or property for collateral. To know your property’s value, lenders need to hire an appraiser to inspect and accurately put a price on it. In addition, the bank also does several credit checks and title searching to make sure that the land title is clean and eligible to use as collateral.
- Use Of Proceeds
If you’re still unsure where to get a reverse mortgage loan, you can check out the Livingstone Team. Professionals like them would advise you that one reason you can save more money with reverse mortgages is its flexibility in using proceeds. You can immediately use the proceeds to pay for an existing debt if you have any. It could even prevent a foreclosure from happening.
With regard to existing debt, this loan can help you save money by avoiding to pay the higher interest from that debt. Your reverse mortgage should have a lower interest rate than this existing loan. So, you can downsize into a loan with a better rate, in the process repay your existing loan as well. You’ll be left to pay the lower interest rate of the reverse mortgage instead.
- Save On Interest
One major fee involved when it comes to loans is the interest rate. This is usually the metric used to benchmark how costly is a loan. With reverse mortgages, interest rates should be cheaper since there’s already collateral put up. Compared to personal loans, interest rates on reverse mortgages should be better, too. The interest rate is also lower since it’s a loan specifically tailored for seniors.
In addition, interest rates on reverse mortgages won’t usually fluctuate anymore since there’s a fixed interest charged. Thus, your interest won’t change throughout the life of the loan. In case the benchmark rates increase in the future, your reverse mortgage interest rate won’t be affected as well.
- Tap Equity
By getting a reverse mortgage, you won’t have to sell your home or pay real estate agents. You can simply tap into your existing assets to get financing for your needs. On top of that, you still get to keep your home.
Reverse mortgages were designed to help senior citizens avail of financing options despite their aging situation. On top of that, it can also help them save a ton of money. Given the reasons above, it could be time to consider availing of one if you’re having financial issues and still own property or a house as assets. It’s worth a shot.
Sherry Thompson is a well-known blogger who has continually gained readers worldwide because of her high-quality articles on relationships, business, and finances. Sherry regularly updates her blog with informative pieces, and contributes to other websites, as well.