A reverse mortgage lets homeowners borrow money against the equity in their home, while still retaining ownership of their home. It lets you make use of your most valuable asset to significantly add to your income stream during retirement and millions have discovered it to be a valuable tool. Reverse mortgages are an option for those aged at least 62.
You don’t need to make any monthly payments if you take out a reverse mortgage, unlike a conventional mortgage loan. You actually receive payments from your lender by means of a line of credit, lump sum payment or monthly payments.
When you die or if your home is sold, at that time the money borrowed is paid back to the lender. The bank pays you each month, meaning that the equity amount may decrease, instead of you having to pay the bank.
What Are the Benefits Of Reverse Mortgages?
If you need more income to be comfortably off during your retirement, as many older people do, a reverse mortgage can be a practical way of supplying those extra funds. With a reverse mortgage, you get to stay in your home but can enjoy an increased income without having to make extra monthly payments. For many retirees, their biggest asset is their home.
Your home’s value, the current interest rate, and your age are two of the biggest factors when it comes to determining how much money you might receive from a reverse mortgage. The lower the interest rate, the older you are and the more your home are worth means you can potentially receive more.
What Are the Drawbacks Of Reverse Mortgages?
If you compare the cost of applying and being approved for a reverse mortgage, it can be a lot more expensive than taking out a traditional mortgage. The costs involved include various closing fees as well as a title insurance fee, appraisal costs, mortgage insurance fee, and loan origination fee. The costs can be rolled into the loan, and can typically be anything between about $30,000 and $40,000.
If you move out of your home on a permanent basis, you’ll have to pay back the loan, which of course can be a big drawback although it may not seem that way at first. For example, if you moved out of your home into an assisted living facility or similar place, and stayed there at least a year, you would then have to pay back the money.
And you will probably end up leaving less money to your heirs, as reverse mortgages decrease the amount of equity in your home, another drawback to some.
Reverse Mortgage Myths and Facts
Many seniors apply for a reverse mortgage without understanding the impact that this financial decision can make. On the other hand, many people tend to discount them as an option because of the many misconceptions out there. The following address some of the misconceptions about reverse mortgages.
Myth: The title of your home goes to the lender.
Fact: This isn’t true; the reverse mortgage is a lien on your property, but you still keep the ownership.
Myth: Your heirs may have a large debt to repay when you move out of the home, as the loan can be for more than the property is actually worth.
Fact: Your heirs won’t owe more than your home is appraised for when the loan matures, as reverse mortgages are known as non-recourse loans.
Myth: If you have a conventional mortgage, you can’t get a reverse mortgage.
Fact: This is true; however, if the proceeds from your reverse mortgage go towards paying off what you owe on your conventional mortgage, that is allowed.
Myth: You may be evicted from your home if you take out a reverse mortgage.
Fact: This just isn’t true. You don’t need to pay back the reverse mortgage funds until you no longer live in the home and nobody can evict you.
Our writers came from a partner company of ours named Seniors Lending Centre Chip Reverse Mortgages
Seniors Lending Centre
2608 Granville St #552
Vancouver, BC V6H 3V3