For many seniors, retirement is a beautiful stage of life. It is a time when your everyday professional obligations are over, and you have more time than you’ve ever had before to enjoy life’s pleasures. With this extra time, you have been able to babysit the grandkids, take that cooking class or visit that antique car show that you were always curious about. Maybe you have more time to meet some old friends for golf or Sunday morning brunches. However, with this newfound freedom from not working comes a tradeoff: you may need to supplement your regular fixed income. Fortunately for you, having a paid-off, or nearly paid off, home means you have an asset in the form of home equity that can help increase your cash flow. All you need is the right tool to access it.
What is a Reverse Mortgage?
Defined as a mortgage loan for senior homeowners age 62 and older, this option allows its borrowers to access a portion of their home equity. Although other options of accessing equity are available, such as selling the home or assuming a second mortgage, only a reverse mortgage loan allows borrowers to remain in the home without a monthly mortgage payment. This is because with a reverse mortgage loan, payment is deferred until a borrower permanently leaves the home. Until then, no repayment is required unless the borrower defaults on loan terms. For certain borrowers, the chance to age in their home combined with the ability to access equity without a required monthly mortgage payment is exactly what they are looking for.
The Pros & Cons of a Reverse Mortgage.
The Pros of a Reverse Mortgage
- The lender does not take ownership of your home as long as all loan terms are met.
- Funds can be used as you wish, such as to cover daily expenses or pay off bills and credit card debt.
- The Home Equity Conversion Mortgage (HECM) reverse mortgage is insured by the Federal Housing Administration (FHA) and has numerous consumer safeguards.
- The loan is non-recourse, meaning that the home is the only asset that can be taken to repay the loan.
- Insurance also protects the consumer from owing more than the value of the home when sold.
The Cons of a Reverse Mortgage
- You may not live away from home for more than 12 consecutive months. Your home must be your primary residence.
- Because the loan’s repayment is deferred, a lien is placed on the home until repayment.
- If your heirs wish to inherit the home instead of selling it, they must find another way of repayment, such as refinancing into a traditional mortgage.
- The loan becomes due and payable if you do not fulfill the obligation to pay your property taxes, homeowners insurance and basic home repairs and maintenance.
- Some borrowers who get a HECM reverse mortgage may be required to set-aside some loan funds to fulfill financial obligations during the loan.
Why is a Reverse Mortgage Right for Me?
A reverse mortgage may be right for you if:
- You have no plans to move away from your home or sell it.
- You want to access a portion of your home equity.
- You don’t want to pay a monthly mortgage payment.
- You appreciate the protection that federal insurance this loan gives.
- You like how the loan is non-recourse, which means no other asset except the home can be taken by the lender to repay the loan.
Armed with the knowledge of reverse mortgages, you can objectively decide if you would find this loan useful for your needs. Calling a reputable lender like Home Reliance Capital Corp and speaking with one of our reverse mortgage professionals can also be a significant source of information for you. You will get the chance to determine this loan’s benefits based on your personal situation and HRC will be with you every step of the way. For many senior homeowners, this loan has been the perfect fit to accomplish what they wanted in retirement. With the right research, you are on your way to finding out if a reverse mortgage can work for you as well.
Contact us today at 631-676-3162 for a free counseling call with no obligation and let’s discuss your options!