Is a reverse mortgage right for you?


What is a reverse mortgage? In its simplest form, a reverse mortgage is a way to tap into your home’s built-in wealth in the form of a loan. Reverse mortgages are offered to people over the age of 62 as a way to tap into home equity for cash. Most people opt to use a reverse mortgage in order to raise money for debt consolidation, pay for home improvements or even help with the purchase of another home.

Read on to get a better understanding of reverse mortgages and if one could benefit you.

How Does It Work?

Lenders make payments to a homeowner and the interest is lumped into the larger loan balance so the homeowner does not have to fork over any cash up front. Each year with a reverse mortgage, your debt increases and the home equity decreases. Borrowers are not required to pay the loan back until the home is sold or otherwise vacated. They also do not have to pay monthly payments toward the balance if they still reside inside the home. Homeowners are still required to pay property taxes, insurance and any other homeowners association fees. The minimum reverse mortgage age is 62 and money received varies on a sliding scale. Those who are older have the ability to pull out more equity.

What Types of Reverse Mortgages Are There?  

There are two reverse mortgages as mandated by the Federal Housing Administration. The first, a fixed-rate option, doles out a lump sum payment. The second, an adjustable-rate, has a variety of payment options. These include the ability to set monthly payments, create a line of credit, or to combine both in what is known as a modified tenure or term, depending on the structure.

Is A Reverse Mortgage Right For Me?

Reverse mortgages are optimal for those who are not planning on moving, have the financial capabilities to keep up with property taxes and other fees, and have an interest in supplementing their income. Those who meet the age requirements and either own their home or have a small mortgage, and do not have any delinquencies with federal debts, are potentially eligible for a reverse mortgage. All homes must meet property standards as mandated by the Federal Housing Administration. Lenders will carry out a credit check and evaluate a person’s income, assets, and other living expenses as part of the approval process.

What Should I Look For With A Lender?

Those considering a reverse mortgage should work with reverse mortgage lenders who are experienced in the field and who are willing to explain other options if they feel a reverse mortgage is not right for you. Good lenders will answer questions about potential drawbacks of reverse mortgages in a candid manner. These types of loans are expensive when compared to other home equity lines of credit and they also reduce inheritance amounts since they must be paid off before assets can be dispersed.

If you are interested in a reverse mortgage, or just want to learn more about your options, see below.

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