Many senior homeowners have spent years building equity in their homes. In fact, some seniors have put so much money into their homes that their retirement savings is not quite where they hoped it would be. To supplement their savings, seniors are now choosing to use their home equity to fund their retirement. This is possible through the use of a financial tool known as a reverse mortgage.
With a reverse mortgage, seniors over 62 years of age are allowed to borrow a portion of their home equity. Borrowers can choose to receive their equity as a lump sum, in monthly installments or as a line of credit. What makes reverse mortgages such popular retirement tools is the fact that seniors are not required to repay their loan for as long as they remain in their home. Still, before deciding to take a reverse mortgage, seniors should carefully consider all of the reverse mortgage pros and cons.
Taking a Closer Look at Reverse Mortgage Pros and Cons
When researching reverse mortgage pros and cons, seniors will quickly realize that these loans are fairly complex. Seniors who decide to get a reverse mortgage must stay in their home for the duration of their loan. Borrowers who decide to sell their home or permanently move into a nursing facility will be required to repay their lender. It is also important that borrowers maintain the condition of their home, pay their real estate taxes and stay current on their homeowners insurance. Failure to do so may also cause the loan to become due.
When discussing reverse mortgage pros and cons, it is also important to bring up the topic of fees. Borrowers will be expected to pay interest on any amount they borrow, plus closing costs, mortgage insurance premiums and a few other upfront fees. While these costs are typically financed into the loan, seniors should still be aware that reverse mortgages, like all other home loans, come at a cost.
Are Reverse Mortgages Worth the Cost?
Fortunately, while reverse mortgages have their disadvantages, they also offer several valuable benefits. For example, reverse mortgage proceeds are tax free and can be tailored to meet the borrower’s needs. Borrowers who must use their proceeds to repay their existing mortgage balance can receive their money as a lump sum, while those who want to supplement their retirement income can choose to receive monthly payments.
Also, unlike regular home loans, a reverse mortgage can never be underwater. As long as borrowers keep up with their obligations, they can never be forced out of their home. When it comes time to repay the loan, borrowers will not be expected to pay more than their home is worth. Also, if the value of one’s home exceeds their loan balance, borrowers or their heirs get to keep the remaining equity. While it is important to consider both the reverse mortgage pros and cons, many seniors find comfort in the fact that their heirs will never be stuck with a bill due to their reverse mortgage.
After examining the reverse mortgage pros and cons, many seniors find that the benefits far outweigh the disadvantages. For many seniors, eliminating their mortgage balance makes all the difference in their retirement years. While these loans may not be right for everyone, they are proving beneficial for a large number of seniors.
Amber enjoys teaching people about financial products that can be used to further their quality of life without putting an extra strain on their pocketbooks. For more information on whether a reverse mortgage might benefit you, visit http://www.seniorreversemortgage.com.