Reverse mortgage

what is it, and why should you consider it?

What is a reverse mortgage? It is a loan, to put it in the most blatant of terms. Now, you may think that there are also other loans globally, so what makes it unique? Unlike most loans, there is a specific criterion set for it. It is only applicable to a homeowner who is 62 years old or older. And has a reasonable sum of home equity that they can borrow against the value of their home.

What differentiates a forward mortgage from a reverse mortgage is that you do not need to make any loan payments. Unlike the prior one.

Importance of Reverse Mortgage:

 Through a reverse mortgage, you can receive funds as a hefty, constant monthly payment or even a line of credit. However, unlike a forward deed, the entire loan balance of the reverse mortgage becomes due. After the borrower moves out of his residence, sells his place, or passes away.

In addition to this, according to federal regulations, the loan amount will not exceed the home’s value. If a situation arises in which the loan amount does exceed the home’s value. Due to either a drop in the home’s market value or the borrower exceeding his predicted lifespan. The borrower or their property are not liable to pay the lender the difference. It is due to the program’s mortgage insurance.

Besides the aforementioned general requirements for being considered for a reverse mortgage, there are also other requirements. It is required for the residence owner to own the home fully or have paid a considerable amount of mortgage. Additionally, the property must be your default residence, and you are expected to have no offense regarding any federal debt. When applying for a reverse deed. You will also be required to perform a credit check and go through any other eligibility requirements set.

 Lastly, you must remain regular on the property taxes and insurance and any homeowners association fees. If all goes well and you are approved for a reverse mortgage. You will be required to go through an information session provided by an approved HECM counselor.

Reverse Mortgage; the Pros and the Cons

The benefits of a reverse mortgage are listed as follows:

A big step in solidifying your retirement

In an era riddled with increasing expenditure. It is not uncommon for most retirees do not to have a stable amount of cash savings or investments left. However, by applying for a reverse deed, you will be able to convert an otherwise illiquid asset into solid cash. Provided your house has accumulated a lot of wealth. Through a reverse mortgage, you will be able to cover most of your expenses in your retirement and go through an otherwise tricky stage with relative ease!

You will be able to pay off any existing home loan.

You can apply for a reverse mortgage even if you have an existing home loan. It allows for an easy solution to pay off said loan through the cash obtained through the reverse deed. Easing your savings burden. Through a reverse deed, you would be able to save your savings from the further obligation. And use the money saved for other expenses!

You will be able to live in your home and not have a tax liability on the mortgage!

You will be able to live in your home due to the mortgage converting your illiquid asset into cash. And you are also not liable to pay the IRS for the loan. As stated by the IRS, a reverse mortgage is considered a loan advance rather than income, unlike most other retirement home incomes.

Some shortcomings of a reverse mortgage are also listed below:

You would be leaving a lot less for your heirs

Usually, a reverse deed requires said home to be sold to repay the debt. If and when you die, your heirs will be liable to pay the entire loan balance. Which would usually result in either the house being sold or given to a lender to satisfy the debt.

A reverse mortgage is complicated and may impact other retirement benefits

A Home Equity Conversion Mortgage may hamper your chances of qualifying for need-based government programs. Additionally, reverse mortgages come with many rules. Most people may find it too much of a hassle or an unnecessary risk for extra cash.

Reverse mortgages are not free.

Although you are not required to make payments for a reverse lease. You still need to keep up with your taxes, insurance, and HOA fees. Additionally, you must also pay an upfront insurance premium which usually amounts to 2% of your home’s appraised value. You will also have to pay origination fees at closing. And while you will have an option to roll down these costs. You will also receive less money.