After the recession in the U.S. and world economy a few years ago, reverse mortgages became immensely popular with many elderly Americans. Yet, there are still a lot of questions about how dependable they are, and if they are right for most seniors. In this article, we will clear up those misconceptions, and you will know if a reverse mortgage is right for you, or not.
What is a Reverse Mortgage?
You should think of a reverse mortgage as a loan that has a similar structure to a home mortgage. Property owners should be 62 years or older to start a reverse mortgage process, and own all or most of their house.
With a reverse mortgage, seniors no longer need to make monthly payments as is required with a usual home mortgage. Instead, they transform the equity in their homes into tax-free dollars, but are still allowed to reside in their homes. Mortgage payments are put on hold until the owner decides to move, sells the house, or when the owner eventually dies. The final amount that is owed is subtracted from the house sale before the estate is paid.
Reverse mortgages can provide needed financial assistance for seniors during their retirement years. This is usually the time when they need an additional source of income, and it is also a time when their medical bills are likely to rise.
Is a Reverse Mortgage Right for You?
Alright, a reverse mortgage might seem like a truly sweet deal. However, how do you know if it is right for you? Here are some tips that you can use to determine if you should apply for one:
• Your Needs – Ask this question, “Why do I really need this money?” Then, you should see if there are any cheaper alternatives. Remember, this type of mortgage is essentially a loan, and it is not free. So, when you die, the beneficiary will have to repay the money that was taken out by the lender.
In addition, you should save this for a rainy day. If you use up all of the equity before you die, you might need the money later for other medical costs.
• Additional Fees – Understand that there are usually other fees that are added. Up to 4% can be added for an origination fee and home insurance.
• Don’t Be Pressured – Some dishonest agents attempt to pressure seniors into signing up for a reverse mortgage. It’s best to talk this over with other family members and financial advisors for the elderly.
• Do It Yourself – If you cannot find agents who can help you apply for a reverse mortgage for free, then you should do it yourself. There are no finders fees attached, and you can personally apply for free or very little cost.
Reverse Mortgage – Conclusion
Essentially, a reverse mortgage is a way for you to receive money that you have already paid on your home. It can be received by monthly payments, through a line of credit, or in one big lump sum. It’s always best to check with an independent advisor before signing the dotted line. You should never feel pressured, and only apply if you actually need the money.
