Reverse Mortgage Benefits Help Secure Your Retirement. You can stay at home. You'll Pay Off Your Existing Home Loan. You are protected if the balance exceeds the value of your home.
You Could Lose Your Home to Foreclosure. If you watch television, you've probably seen well-known voices such as actor Tom Selleck who touts reverse mortgages as a valuable tool for anyone retiring. However, every financial product has two sides, so carefully consider the pros and cons of a reverse mortgage. A reverse mortgage is a loan for homeowners who are 62 years of age or older who want to apply for a loan with the equity of their home without having to make monthly payments.
This mortgage product can help older people who have little funds for their living expenses. It can also benefit those who want to diversify their sources of retirement income and protect themselves against risks such as market crashes and the survival of savings. They are a constant stream of income that lasts for years. You can turn your home equity into a pile of money without having to move.
Before making a decision, here's what you need to know about the advantages and disadvantages of a reverse mortgage. In general, the costs and risks of obtaining a reverse mortgage are greater than the cumulative increase in Social Security payments that homeowners receive when waiting until full retirement age to apply for benefits. A reverse mortgage loan is a non-recourse loan, meaning you can't owe more than the value of the property no matter how long the loan is in effect. However, tax rules can be complicated, so be sure to consult a tax professional for advice before committing to a reverse mortgage.
Because the balance of a reverse mortgage increases in size, it may eventually exceed the fair market value of the property. These loans are called jumbo reverse mortgages because they are mainly used for higher-value properties. However, the rates can be financed with the reverse mortgage itself, so there are options to avoid “out of pocket” expenses at closing. And while borrowers can keep sales revenues that exceed the balance owed on the loan, thousands of dollars in reverse mortgage costs will have already been paid.
Reverse mortgage underwriting guidelines require the borrower to maintain property charges and occupy their home as their primary residence. If you choose a reverse mortgage now and later decide to move, you may have less equity available for your next purchase. For many people, a reverse mortgage is a good way to increase financial well-being during retirement, positively affecting quality of life. And while the product has numerous benefits, there are a few drawbacks: disadvantages of a reverse mortgage.
Another potential downside for a borrower aged 62 and older with a reverse mortgage may be the accumulation of funds in their account if they rely on need-based programs, such as Medical. Adding someone to your home title won't protect you from reverse foreclosure (and it can also create new problems). You must be at least 62 years old (or the couple's youngest person must be this age) to get a reverse mortgage through the FHA program. Moving to a nursing home or assisted living facility for more than 12 consecutive months is considered a permanent move under inverted mortgage regulations.
However, if you want fixed-rate financing, the amount of equity you can access is less than what you could get with an adjustable rate reverse mortgage. .