If you feel that you are short on cash, and don’t have any other practical means of generating the cash you need to make your daily life livable, you may want to consider taking out a reverse mortgage loan. This should be the case if you feel that your home equity is the only important asset you have. A reverse mortgage should make it easier for you to get the cash you require while taking your home’s value as the security.
This is, however, a decision that needs a serious thought considering that you have put a lot of effort into accumulating your home’s current equity. While analyzing such a case, you want to consider both drawbacks and benefits. If you were wondering how a reverse mortgage can be useful, consider the following:
A relief to your long-term challenges
To qualify for a reverse mortgage, you need to be a homeowner, or close to paying off your home mortgage. To make it clearer, you should have enough home equity so you can get a reasonable monthly payment from a reverse mortgage or line credit after clearing any existing mortgage that you might have.
You should, however, consider getting some reverse mortgage advice as well as get quotes from approximately three reverse mortgage lenders. That way, you can have a better idea of whether the loan is capable of providing a long-term solution to any financial challenges that you may be facing.
You want to explore how much you could possibly get from each of the reverse mortgage payment options that are available. If none of them seems to provide the amount of cash you need, you may want to consider other options available.
Something like selling your home can allow you to benefit from the entire equity rather than having to get just a part. You may also consider renting or even moving in with a relative to
make things easier. You never want to use up your hard-earned home equity on a reverse mortgage only to face the same financial challenges after some time.
You have no moving plans
One thing you need to keep in mind is that taking out a reverse mortgage basically requires you to remain in your home as a primary residence. This is in consideration that there are several up-front costs associated with reverse mortgages, such as lender fees and origination fee, which can go as high as $6,000 depending on the value of your home. You also have mortgage insurance to pay, which may come to approximately 0.5% to 2.5% of the appraised value of your home, depending on the reverse mortgage payment plan of your choice. There are closing costs as well, that may include a home appraisal, inspection, and title insurance.
You can afford associated costs
It’s crucial that you be able to keep up with property taxes, home maintenance costs, and homeowner’s insurance, failure to which the lender may decide to declare your loan due and payable. Not paying property taxes for a long time can make tax authorities place a lien on your home, and eventually sell it to recover the taxes you owe them. One thing you have to keep in mind is that a tax authority’s claim to any property supersedes the lenders. By not paying taxes, therefore, you are risking the lender’s collateral (your home).
Also, if you fail to pay the homeowner’s insurance, you risk the lender’s collateral considering that if the house burns down by bad luck, no one will be there to pay the cost of rebuilding. No lender will accept a burned-out home whose value is less what you owe the reverse mortgage.
Also, not paying for your home’s maintenance will make it lose value in the long run. If, for example, you fail to replace a failing roof, your home might end up getting damaged significantly in case of heavy snowing or even thunderstorms. In such a case, potential buyers would have to pay lower than what they would if the house was in good condition. That’s in consideration that they will have to pay for repair services. Some buyers might as well avoid buying the home to avoid having to fix the damages, as they may never really know how severe they are.
Your spouse is currently 62 or older
To qualify for a reverse mortgage, you have to be at least 62 years old. If you are married and have a spouse who is less than 62 years of age, you may not want to consider taking out a reverse mortgage. Even though your younger spouse is protected from losing the home by the law if you die first, they won’t be getting reverse mortgage proceeds once you are gone.
As such, your spouse will lose the source of income they depended on if your reverse mortgage is set up as a line of credit or a monthly income stream. The proceeds you get from a reverse mortgage also depend on the age of the youngest spouse with no regards to whether they are included on the loan or not. The younger your spouse is, the lower the initial borrowing amount will be.
If both you and your spouse are 62 or older, getting a reverse mortgage can be a good choice. You, however, have to consider using an online calculator that focuses on this kind of mortgage, as well as getting advice from a reverse mortgage counselor. That way, you can determine how the value of your proceeds will be affected as you get older.
If you survive without depending on the loan, consider postponing it to increase proceeds (home value and interest rates determine the proceeds you get). Besides, you might get a better solution to your financial challenges and decide not to take out the mortgage.
You have no plans to bequeath your property
At times, you may not have any plans to leave your home to anyone, unless when you have a spouse. If, for example, your spouse is deceased and/or you don’t have kids, or they are financially successful so that leaving them your home won’t create much of a difference in making them more successful, you may decide not to bequeath the home.
Besides, if you worked so hard to own the home, you may wish to cash in the equity and use it up before you pass on – it’s your achievement; you do what pleases you. If the last standing borrower demises, the loan becomes due and payable. In such a situation, however, any heir who wishes to repossess the home can opt to clear the reverse mortgage debt if they have the cash, or even get a regular mortgage to buy the home.
If the heirs fail to purchase your property, the lender will sell it to someone else, to recover the money they lent you. Any positive balance after clearing your loan will be transferred to your estate, and if the balance is negative, then the FHA insurance will cover it. Therefore, if you have no plans to leave your property to anyone, you might want to consider securing out a reverse mortgage to get the cash you need to live a good life.
Over to you,
Reverse mortgages are a quite complicated topic and have been criticized severally, but that doesn’t mean that they are a bad deal for everyone with no regards to the situation. There are times when the loan may be an expensive option and not ideal for several people, but still be suitable for your circumstances.
It all matters on whether the proceeds you will get will be enough for you, whether you and your spouse are at least 62 years old, whether or not you plan to bequeath your home, whether you
will afford the costs involved, and whether or not you have any plans to move soon. Once you are sure that a reverse mortgage is a good deal for you, consider determining who the best lender is, and then get the deal done.
