Reverse mortgages can be a great way for homeowners age 55+ to leverage their asset. Borrow against your home equity to refinance or get credit to purchase your new home with no monthly mortgage payments. Repayment is only necessary if you move from home, sell it, or fail to meet the obligations of the loan. We have outlined a list of pros and cons of reverse mortgages to help you make an informed decision.
Pros of Reverse Mortgages
Meeting different financial obligations can be tough, especially monthly mortgage payments. The reverse mortgage can help one stay afloat in tough economic conditions. Here are some reverse mortgage pros you should know about.
1. Can Help Secure Retirement for You
A reverse mortgage is a great option for any retirees who may not have a lot of investments or cash savings but have wealth built up in the form of equity in their home. A reverse mortgage may be able to help you turn your real estate asset into cash or a line of credit. You can use this to cover your expenses during your retirement.
2. Can Still Stay at Home
Usually, you have to sell off your home if you want to liquefy the asset, but a reverse mortgage can help you stay in the home and receive cash as well. You don’t have to downsize or move out with reverse mortgages. For the elderly, moving can be a nuisance as well, which is why getting to stay at home can be great.
3. Can Pay Off Any Existing Home Loans
The proceeds from a reverse mortgage will pay off your current home loan, if y ou have one. Any additional funds will go to you in the form of cash or line of credit- depending on your needs. This can help you free up cash flow that you can use for other expenses.
4. You Can Refinance a Reverse Mortgage
Depending on your loan balance, home value, and interest rate, a reverse mortgage refinance may be possible. If you already have a reverse mortgage but your home has grown in value significantly, a reverse mortgage refinance can allow you to unlock this additional equity.
5. Protection in Case Balance Is More Than Home’s Value
If the home’s value ends up lower than the amount you received through the reverse mortgage, you will be protected. Home prices can fall, or the value of the neighborhood could go down. So in a worst-case scenario, you don’t have to worry about your heirs having to pay off the extra amount at all. This is the beauty of reverse mortgages being non-recourse.
Cons of Reverse Mortgages
While there are numerous benefits to taking out a reverse mortgage, you should also be mindful that there are some cons too. Here are some risks that you should consider carefully before taking out a reverse mortgage.
1. Can Impact Other Retirement Plans
While reverse mortgages are typically not taxed since they don’t count as income, they can still impact your access to other government plans such as food stamps and Medicaid. You should make sure to discuss this with an expert to ensure your eligibility for these benefits isn’t compromised.
2. They Can Be Expensive
Reverse mortgage closing costs are included in the loan and interest grows on the balance over time. It is not recommended to get a reverse mortgage if you plan on selling the home within 5 years. To get the ultimate benefit from the program and justify the expense, it is recommended to stay live in the home for 5+ years at least.
Discover the Pros and Cons of a Reverse Mortgage
Reverse mortgages aren’t necessarily for everyone, but they can be incredibly helpful in the right situation. The pros and cons of a reverse mortgage are different for each person depending on the situation. They are great for people who plan on staying in their home in the long run. Learn more about reverse mortgage on our website here.
Homeowners should weigh the pros and cons of a reverse mortgage heavily and consult with professionals before taking one out. Call us today at Reverse Loan Solutions and we can help determine if it is the right fit for you!