Reverse Mortgage - What Is It And Is It Right For Me
As a homeowner, you have many options for obtaining the equity from your home. You can refinance to include other bills as well as lower your monthly payments on your mortgage. You can also obtain a home equity loan to help you pay off other debts or provide you with a little safety net. If these options do not seem beneficial for you and you are above the age of 62, you can apply for a new type of mortgage. This new mortgage is called a reverse mortgage. You are probably wondering what a reverse mortgage is and how it can affect you. Below are the answers you seek as well as information on whether it is good for you and the risks it might entail.
What is a reverse mortgage? This may seem a simple answer, but it is accurate: A reverse mortgage enables someone who has reached the age of 62 or older to convert part of their home equity into tax free income without giving up your home, the title to your home, or take on a new monthly payment. In other words, you will be paid to have the mortgage rather than making a monthly payment. There are a variety of payment options you can choose. You can have the money given to you in monthly installments, all at once, or you can draw on it whenever you have the need. When you decide to obtain a reverse mortgage, you can still be paying off an existing mortgage or you can obtain the reverse mortgage when you don't have another mortgage.
What Situation Is It Good For
The best way to use a reverse mortgage is when you do not have another mortgage. In this I mean you have equity built up in your home, this equity is the value of your home minus anything owed on an existing mortgage. So if you do not owe anything on a mortgage, you will have the total value of your home to draw on. The idea of a reverse mortgage is to help you with daily living expenses, medical bills, or other expenses you have. So it is best to only use this type of mortgage when you don't have another mortgage to pay off and you have a need for the money; the reason for this is because you will have to pay the bank back. They are lending you money that must be repaid. First, there is a monthly service fee for the loan usually around 30 dollars. Next, the loan must be repaid when you have either ceased to live in the home, sell it, or you become deceased. Obviously, if the proceeds from selling your home are more than the reverse mortgage, you will keep the excess proceeds.
There are a few risks. For instance, if you do not sell your home for the amount owed, you will have to come up with the difference. This may only occur if the house sells for undervalue. Another risk is, if you sell your home only after a few years of taking out the reverse mortgage, you are losing quite a bit of income. In other words, the upfront costs of the reverse mortgage may be too much to risk if you will not remain in your home for longer than three years or if it will hinder the reason for getting the loan in the first place.