If you’re a retiree, then a reverse mortgage can serve a valuable retirement planning tool. You can increase your income during retirement greatly by making use of your greatest asset, your home. Continue to maintain your home ownership while borrowing against your homes equity.
Unlike traditional mortgages, reverse mortgages don’t require payments. Basically, your lender will pay you instead through a line of credit, monthly payments, or a lump sum payment. During this time your home equity will shrink instead of grow.
A reverse mortgage doesn’t get repaid until you:
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Die
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Move permanently from your home
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Sell your property
However, it’s important to know that you will need to be at least 62 years of age in order to qualify.
The Pros of a Reverse Mortgage
The greatest benefit of all when it comes to reverse mortgages is by far, increasing your income for maximum financial comfort during retirement. Another great benefit is that although your income increases, your monthly payments do not. You also get to remain in your home.
If you meet the age requirement, your amount eligibility will depend on a few things:
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Home value
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Age
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Interest rates
Depending on your age, home value and interest rates you may be eligible for even more money.
Reverse Mortgage Cons
Like all mortgages, even reverse mortgages come with some costs such as:
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Appraisal fees
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Closing costs
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Interest rates
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Loan origination fees
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Mortgage insurance fees
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Title insurance fees
These costs are also typically higher when compared to traditional mortgages, and can range from 30 to 40 thousand dollars. However, you don’t have pay these costs out of your own pocket, instead they’d be rolled into your loan.
Should your health take a turn for the worst and you need long-term health care, you may have to move out of your home into a long-term care facility. If this happens, your loan would become due. This is something you should be aware of beforehand.
As previously mentioned, your home equity will decrease with a reverse mortgage, as such it can also affect your estate and the amount of money you’ll have to leave for your loved ones after your passing.
Myths & Truths about Reverse Mortgages
Many homeowners don’t consider reverse mortgage loans because there are many misconceptions about these types of loans. Here are a few of the myths.
You may have heard that your lender will take your home title. This is one of the biggest myths of all and simply not true. A reverse mortgage is merely a lien against the property, you are still considered to be the homeowner, retaining ownership.
No matter what you’ve heard, your loan value cannot exceed the value of your property, which would essentially leave your loved ones will large bills if you leave your home, or pass away. The truth is, a reverse mortgage is a non-recourse loan. What this means is that you and/or your loved ones will never owe (or have to pay) more than your home’s appraisal value when the loan matures.
However, if you’ve heard that you can’t get a reverse mortgage if you have a conventional mortgage, you heard right. However, you can be eligible if you intend to use the proceeds to pay off your conventional mortgage at closing.
Now, if you concern is that you’ll be evicted from your home, don’t let this concern you, when you leave your home is all up to you. It’s not until you are no longer in your home, that your loan will require repayment.
To learn more about reverse mortgages, contact the professional mortgage team at AKAL Mortgages.
When we say YES! We stand behind our promise. ®