Reverse mortgages can be a great way to invest in real estate for potential homebuyers who are 62 years and older. You will be able to borrow against the equity to get credit or a line from a lender to purchase your new home. In some cases repayment is only necessary if you or your heirs sell the property and often there are no monthly payments required on the loan.
If you’re still on the fence about reverse mortgages, or maybe you feel you just don’t have all the information, don’t worry. We have outlined a list of pros and cons about 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 that may not have a lot of investments or cash savings but have wealth built up in the form of the 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 period.
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
In many cases you don’t have to completely pay off the home if you want to take out a reverse mortgage on your home. You can use the cash or line of credit you get to pay off any loans you have on the home. This can help you free up monthly money that you can use for other expenses.
4. Protection in Case Balance Is More Than Home’s Value
Since it is a loan advance, a reverse mortgage typically only needs to be paid off the loan when you or your heirs decide to sell the property. 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, (and in most cases) you don’t have to worry about your heirs having to pay off the extra amount at all.
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. Risk of Losing Home Through Foreclosure
One common requirement of qualifying for a reverse mortgage is that the person applying for a reverse mortgage can afford the homeowners’ insurance, property taxes, HOA fee, and any other costs that come with owning the house. Homeowners also need to live in the house as a principal residence.
Homeowners who don’t pay all these expenses or don’t live at the property are considered to have an increased risk of losing the home in a foreclosure.
2. 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 Supplemental Security Income and Medicaid. You should make sure to discuss this with an expert to ensure your eligibility for these benefits isn’t compromised.
Should Homeowners Get a Reverse Mortgage?
Reverse mortgages aren’t necessarily for everyone, but they can be incredibly helpful in the right situation. They are great for people whose homes are increasing considerably in value, or you if plan on staying in the home in the long run. You should also be able to cover the general costs for the house, which will require some kind of cash flow.
Homeowners should weigh the reverse mortgage pros and cons heavily and consult with professionals before taking one out. Give Reverse Loan Solutions a call and we can help determine if it is the right fit for you!