Reverse mortgages, like all financial plans for your home, have different pros and cons. In considering whether or not a reverse mortgage is right for you, the terms of the agreement must fit your unique situation. The following articles will aid you in assessing your financial situation by addressing the assets that one receives from a reverse mortgage, as well as what to be cautious about.
Pros of a Reverse Mortgage
Reaching the age of retirement puts many senior citizens in complicated financial situations, especially when it comes to home ownership. Those who have never taken the reverse mortgage route are often times skeptical at the idea because of the differences between reverse and traditional mortgages. But a reverse mortgage presents a wide set of opportunities for homeowners not offered by the traditional route that they are used to.
With a reverse mortgage, you do not answer to the lender, he answers to you. Meaning monthly payments will be a thing of the past, and that repayment of the loan is contingent upon your financial decisions (i.e. leaving the home).
Reverse mortgages also offer a great deal of mobility; with the funds you receive from this mortgage, you are free to pay off any other existing mortgages. There are many different ways to receive your money in a reverse mortgage as well. Funds can be distributed on a monthly basis, via a line of credit, or in the form of a lump sum. But transference, whether it be of debt or paid estate, is also a major concern in deciding whether or not a reverse mortgage is right for you.
The idea of leaving unpaid debts to heir’s of estate can be very intimidating, but luckily reverse mortgage plans tackle this issue for you. While the inheritance of the estate is contingent upon repayment of the loan, the bank cannot force your heir’s to pay it off; leaving your heirs with the choice to either pay or walk away. In addition, shall your heir’s of estate choose to repay the outstanding debt and then sell the home; they get to keep any profits made off of it.
Cons of a Reverse Mortgage
While reverse mortgages provide a vast amount of opportunities for financing your home, they are not for everyone, and don’t guarantee full acquisition of your financial goals. In considering a reverse mortgage loan, one needs to be confident that they can effectively deal with the cons or disadvantages attached to this unique loan.
Reverse mortgages are not the same as conventional loans, thus making them widely misunderstood. External pressures from peers or family members may alter your opinion, so it is imperative that one educates themselves on the facts about reverse mortgages. The best advice for assessing the potential risks or cons of a reverse mortgage is to utilize counseling services, which are offered privately and/or federally.
Obtaining a reverse mortgage will not affect social security benefits or Medicare. However, those on a Medicaid program may be effected. If you are on Medicaid and want to apply for a reverse mortgage, asset management from both programs may be in order.
It is also important to note another con; that reverse mortgage loans often carry higher interest rates due to the lender’s risk factor. In addition, one must prepare themselves for decreases in home equity and increases in loan balance that accumulate over time. It is also important to watch the housing market, as the value of your home will most likely fluctuate between the onset of the loan and it’s closing.
Don’t lose sight of your other financial obligations either, as this can alter the terms of your loan. While the loan is in place, you must continue to pay property tax and insurance, and property upkeep is vital. In addition, the individual who obtained the reverse mortgage must occupy the home.
Do the pros of a reverse mortgage outweigh the cons? If setup properly, we believe it definitely can. Choose your lender carefully, be involved in the process, and never stop educating yourself.