When it comes to a reverse mortgage, wise consumers weigh the advantages and disadvantages of a reverse mortgage prior to signing on the dotted line.
Let's start on a positive note.
You could do what most borrowers do and opt for the reverse mortgage line of credit. Just think about how you would then be able to draw on the loan whenever money is required for daily living expenses, medical bills, prescription costs, home repairs, etc. A reverse mortgage could really enhance your retirement years including in-home care expenses in later years.
Furthermore, your reverse mortgage income does not affect regular Social Security payments or Medicare benefits. And lenders cannot foreclose on the loan for the life of the borrower.
Okay, that's all well and good but how do I turn the major disadvantages of a reverse mortgage into a positive? It's all in the perspective. For every negative there is a positive.
It's true, a reverse mortgage loan may affect your eligibility for state and federal government assistance programs such as Medicaid but it also gives you an important financial cushion and does not affect your regular Social Security payments or Medicare benefits.
You also have no monthly payments to make. Granted, the amount you owe continues to grow larger over time but you also have more cash on hand to enhance the quality of your current lifestyle. Look at it this way, you will now have all the money you need (and want). After all, it's your money. True, you won't have the full selling price of your home to leave your loved ones but if they're financially sound in their own right, do they really need a substantial inheritance?
It all comes down to what's important to you, what your current financial needs are and if leaving money to heirs is something you feel you need or want to do.
Now let's take a look at the basics of a reverse mortgage.
It is essentially a special type of loan that seniors can use to convert the equity in their homes to cash. At one time, the only way to get money from your home was to sell it and move or borrow money against it.
One of the pros of a reverse mortgage is that you continue to own your home and the lender instead makes payments to you.
Certain qualification requirements must be meet in order for reverse mortgage loan to take place.
- All homeowners looking to obtain a reverse mortgage loan must be at least 62 years old.
- Anyone seeking a reverse mortgage loan must undergo mandatory counseling from a HUB (the U.S. Department of Housing and Urban Development) approved counselor prior to actually applying for a reverse mortgage. This counseling is essentially an in-person or telephone session that outlines the process and is used to determine eligibility.
- As with a conventional mortgage there are certain costs involved in the reverse mortgage process. Costs may include application fees, closing costs, insurance, appraisal fees, credit report fees, and quite possibly a monthly service fee.
- A reverse mortgage loan requires no repayment for as long as you live in your home. When the home is sold and the borrower moves, or the last living borrower dies, the loan must then be repaid. In most cases, the home is sold to repay the mortgage.
- The borrower however is still responsible for property taxes, insurance and repairs. If these payments are not maintained, the loan could become due in full.
As discussed previously you need to seriously examine any disadvantages as well as any advantages.
Disadvantages could include tax consequences but remember a reverse mortgage is not classed as taxable income. Your perspective and how you want to make your home work for you is the key to using this to your benefit..
Please know too that the amount of money you may receive depends on several factors of which include your age and the type of reverse mortgage selected as well as your appraised home value and current interest rates. As a rule, the older you are, the more valuable your home and the less money you owe on it ñ the greater your pay out would be.
That said, you need to determine for yourself if the advantages outweigh any disadvantages. Remember, it's a personal choice. What might be right for one homeowner may not be right for the other.
The bottom line is a reverse mortgage can be a beneficial loan product when entered into with a full understanding of the advantages and disadvantages. For seniors who are in need of money to cover growing expenses and to enhance the quality of life in their later years it can be a real blessing.
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