What is a reverse mortgage?


A reverse mortgage allows homeowners to convert equity in their home into cash. Borrowers can elect to receive a single lump sum payment or establish a credit line that can be drawn upon as needed. Borrowers can also choose to receive monthly installments. If monthly installment payments are selected, it is possible that the homeowner can continue to collect the payments for many years if they remain in the home.

If the equity you have in your home is your largest asset, and you need cash reserves, you may want to consider taking out a reverse mortgage. The decision to apply for a reverse mortgage is not a decision that should be taken without much thought and consideration. It has likely taken years to accumulate home equity and taking out a reverse mortgage will result in a portion of equity being dedicated to loan interest and fees. There are times, however, when a reverse mortgage makes sense. These following are the times when a reverse mortgage is a smart option for homeowners:

Looking for a Solution for a Long-Term Issue


To qualify for a reverse mortgage, you must either be close to paying your home off or already own it outright. The equity in your home must be enough so at the close of the mortgage, you will have a reasonable amount left over for a lump sum payment, installments or a line of credit. It is a good idea to get quotes from several lenders to determine the best loan package for your needs.


Explore how much you will have to work with from each payment option. If the offers can help you access to capital you need right now, you can address any long-term financial needs with the proceeds from the loan. This may be the solution that offers the quickest way to address a pending financial challenge.

You Plan to Stay in Your Home


You should have plans to stay in your home if you are considering a reverse mortgage. The up-front costs can be costly as they include lender origination and other fees that depend on your home’s current value. Up-front mortgage insurance can cost between 0.5% and 2.5% and there will also be closing costs. If you plan to stay in your home, you may be able to recoup the fees associated with the new mortgage. You also must be able to afford any ongoing costs associated with homeownership like property taxes, home maintenance and homeowner’s insurance.


If you have no plans to bequeath your home to anyone but your spouse, the reverse mortgage may be an ideal way to get access to cash now. If you do not have children or if your children are financially successful, inheriting the family home may not make a meaningful difference in their lives, you can put the equity in your home to good use now. Heirs who decide to take possession of the home will have the opportunity to pay the balance of the reverse mortgage and receive the title.

Your Spouse is 62 or Older


Borrowers must be at least 62 years of age. If you are married and your spouse is 62 or older, consider a reverse mortgage. There are laws in place to protect a non-borrowing spouse from losing the property if the borrower passes away first. Reverse mortgage proceeds are designed with the youngest spouses’ age in mind. The age of the borrower and spouse can impact the amount that can be loaned.


You have worked hard to pay your home and having cash in equity will allow you to do some of the things you desire while you’re able. You are perfectly entitled to enjoy the fruits of your labor. Although reverse mortgages are widely criticized, they are offer a viable financial solution for some homeowners. You must evaluate your circumstances to determine if it is the best option for you.

Sources:
“What is a reverse mortgage”
https://www.consumersadvocate.org/reverse-mortgages/a/saved/reverse-info-and-eligibilty?

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