There are a lot of misunderstandings about reverse mortgages.
The truth is, not many people know what they really are or what the terms are.
Why take out a reverse mortgage when you already have a mortgage?
Besides, you have enough expenses already without borrowing money, right?
The truth is that reverse mortgages don’t work the same way conventional mortgages and loans do. Take a closer look.
What is a Reverse Mortgage?
A reverse mortgage is a loan borrowed against the equity of your home. The loan does not become due unless the owner dies, moves out, or sells the home.
That means the homeowner may continue living in the home without worrying about going into default for late payments. Instead, they are able to relieve the pressure of financial strains.
Benefits of Reverse Mortgages
There are quite a few benefits to choosing a reverse mortgage. Listed below are just a few of them:
- Pay off the old mortgage – Unlike a conventional mortgage, reverse mortgages aren’t paid on a monthly payment plan. You can use a reverse mortgage to pay off the mortgage already on your home to remove your monthly payments.
- Supplement income – Retirement funds and savings accounts are often not enough for all the expenses related to owning your own home. Worse, major expenses can sneak up on you and drain what money you do have. A reverse mortgage allows you to add a little more to your income to help you get past those financial hurdles.
- Lift budget constraints – Most seniors must have a budget for every penny they spend just to make it from month to month. When you opt for a reverse-mortgage, you can spend their money as you see fit. That may mean taking the vacation you’ve always wanted or finally remodeling the kitchen. Or you can use the money to make home repairs that you’ve been holding off on until the money was available. How you spend the money is completely up to you.
Facts about Reverse Mortgages
Here are a few key points you may not realize about reverse mortgages:
- Home ownership – When you opt for a reverse mortgage, you still retain ownership of the house. Even if you used the reverse mortgage to pay off the conventional mortgage, the home remains yours. With careful planning, the home may still be passed on to your heirs. Talk with a financial planner to strategize and come up with a strong plan on how to accomplish that.
- Property expenses – Even though the house remains yours, you must still maintain it and pay property expense like property tax and home owners insurance. Not paying them could place the property in default and you risk losing your home.
- Loan period – A conventional loan is where you borrow the money and then must make payments according to the terms of the loan. There is a specific time frame in which it must all be paid back or you may be considered in default of the loan. Reverse mortgages do not have a specific loan period. Whether you sell the property in five years or twenty years, the loan isn’t due until you sell, move, or pass away.
Before proceeding with a reverse mortgage, make sure you sit down with a financial planner so you can have all the facts. You need to fully understand all the pros and cons and what it means for you down the road.