As people get older, they might come upon tough financial times. Especially if they don’t have much stored away in savings. If they have taken the necessary measurements to ensure a comfortable retirement financially, then they are in the minority. Most retirees underestimated how much they would need for retirement & have to look for other means of income.
So many people who could have otherwise retired are forced to go back to work just to keep up with the bills. They get a new job (sometimes an entry level job) just to pay the bills. Social security is not usually enough to live on and other measures are necessary. A reverse mortgage is a great option for anyone who finds themselves in this predicament. Why should someone contemplating retirement consider a reverse mortgage? Let’s take a closer look at reverse mortgages.
A reverse mortgage is basically the opposite of a traditional forward mortgage. In most cases, when you purchase a home, you borrow money for the majority of the purchase. You then pay down the principal until eventually you own the house free and clear. The nice thing about a reverse mortgage is that the lender gives you monthly payments, and you’re not expected to pay it back until the end of the term – which isn’t until you sell the home, or die.
The advantage of a reverse mortgage is that you won’t run the risk of being foreclosed on even if you borrow as much as allowable against the home. The remaining balance of the loan cannot exceed the home value. You don’t have to pay anything until you either sell the home, or die. The bank gets their money back from life insurance or the sale of the home after you’ve passed away.
This type of loan is only available for those over the age of 62 and only for those who have a good deal of equity in the house. The primary condition is that they have the home paid off, or they must be really close to having it paid off. You don’t need income to qualify for a reverse mortgage. As you won’t be repaying it with payments, the bank is not concerned on whether you can pay the mortgage back. The house guarantees that they will get their money back in the end. They’re also insured by FHA.
The downside to a reverse mortgage is that you can’t pass on a mortgage-free house to your heirs. This may or may not be important to those involved, but it should be a consideration.
Under the right conditions, a reverse mortgage can be a fantastic tool. Before making any final decisions, be sure to talk about it with your family – especially those who you plan on leaving your estate to. Check with your mortgage broker and play with the numbers. Just make sure this works for you in botht the long run as well as the short run before committing to anything.
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