Reverse Mortgage

As you start thinking about retirement, of if you have retired, you need to consider factors like financial status and health since you will no longer be the recipient of an income cheque. The solution is going through processes like reverse mortgage9a somewhat modified 2nd mortgage) that will let you borrow against your home equity alone.

What is Reverse Mortgaging?

A reverse mortgage lets homeowners convert a certain percentage of their home equity, however much they deem fit, into liquid cash. This is particularly for those individuals who are 62 years of age, or older.

The most unique thing about a reverse mortgage is the fact that payments are not made to the lender. Rather, the lender provides money to the borrower which does not have to be paid back until the house is sold and in the hands of another person. Thus, it remains key that property taxes are kept in order and there is insurance in case of any damages incurred.

Pros of Reverse Mortgaging:

There are many benefits that can be derived through a reverse mortgage, they include:

  • Gives you the opportunity to enjoy retirement in the comfort of their own house.
  • You are able to retain full ownership of the house, despite having borrowed against its equity.
  • There are various options through which you can receive your monthly payments; monthly or term payments, line of credit or a combination of the two.
  • There is no concept of paying monthly payments. You can pay the lender back in one go when the house is sold.
  • You are free from interest rates being applied to monthly payments, which are typically applicable on normal mortgages.
  • It can help eliminate expenses like insurance and housing through the extra money given on a monthly basis.
  • Any money that you receive from a lender is not likely to be taxed.
  • Reverse mortgage does not have an effect on senior benefits like medical coverage or social security.
  • Reverse mortgages are non-recourse in nature. This means that you don’t have to give amounts higher than the value of your home at the time of repaying.
  • A positive change in property value can increase your equity. Thus, you should opt for refinancing so that your reverse mortgage increases.
  • After you have paid the mortgage back, the remaining amount of finance is yours to do with as you please.

Cons of Reverse Mortgaging:

  • As time passes, the balance may accumulate additional amounts in interest.
  • Reverse mortgage will, eventually, take away this asset which will mean that there will be fewer things to leave behind to your heirs.
  • You heirs may have to repay the loan balance if the house is not sold within your lifetime.
  • The fees of a reverse mortgage is higher than a normal mortgage.
  • In some cases, senior benefits may be affected thus there is a need to consult a specialist.
  • You must pay the reverse mortgage if you haven’t lived in the residence for more than a year, 6 months for non-medical reasons, failure to meet loan conditions like payment of property tax and if the last remaining borrower dies.

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