With rising inflation and rising prices for goods and services, you may be looking for a way to free up some cash. And– at least for owners 55 and over – may be one way to achieve this.
However, they are not suitable for everyone. The benefits of this unique personal financial decision vary depending on your own circumstances. You can easily see what you’re entitled to — and how much money you can potentially get out of your home — by talking to a lender today.
Are you considering a reverse mortgage? Weigh these pros and cons now.
What is a reverse mortgage and how does it work?
lets you borrow against the equity in your home, turning it into cash you can use for any purpose.
Unlike traditional mortgages, you don’t make any payments on a reverse mortgage. Instead, the mortgage lender pays you – either with a lump sum, monthly installments, a line of credit, or through a combination of these.
You only repay the loan when you sell the house, move out, or die.
Reverse Mortgage Professionals
It can provide additional income
The biggest advantage of reverse mortgages is that they provide additional cash flow, and in retirement – when funds are often limited – this can be a big help. If you choose monthly payments, it may even be enough to cover your living expenses and any other expenses you have to deal with on a regular basis.
If this sounds like something you could benefit from, you can easily get started today.
It can reduce your monthly expenses
Reverse mortgages also eliminate the need for expensive housing payments. Rather than shelling out hundreds or even thousands a month to a lender, you get paid instead. This can make it much easier to get by on a limited retirement income.
It’s tax free
Although they may feel like it, the proceeds of a reverse mortgage are not considered income, at least by the IRS. This means you won’t owe any additional taxes on your reverse mortgage payments, no matter how large.
Disadvantages of reverse mortgage
There are closing costs
Reverse mortgages have no monthly payments, but they are not completely free. In fact, reverse mortgages come with closing costs – and these can add up to a certain amount in some cases.
According to the Consumer Financial Protection Bureau, origination fees can be as high as $6,000. There are also third party fees for appraisals, credit checks etc. and you will also have to pay MIP (Mortgage Insurance Premiums). These represent 2% of the maximum amount of your initial loan, plus 0.5% of the outstanding loan balance each year.
Your heirs will inherit less
If you plan to leave your home to children or grandchildren, a reverse mortgage could complicate the task. When you die, your reverse mortgage balance will become due, and if your heirs can’t pay it out of pocket, they’ll have to sell the house to pay off the balance. The heirs generally have 30 days after receiving the notice to repay the loan.
It puts your home at risk
A reverse mortgage is a loan that uses your home as collateral. This means that if you don’t meet the terms of the mortgage — namely, staying current on your property taxes, home insurance premiums, and HOA dues — you’ll be in default and the lender could foreclose on your home.
Reverse mortgages can be useful financial tools, but they are not suitable for all homeowners or all scenarios. Before applying for a reverse mortgage, be sure to carefully consider the pros and cons of these loans.
If you’re ready to go — or just want more information about this unique personal financial opportunity — you can talk to a lender to see what you qualify for.