Sometimes the cost of living a life of retirement can exceed that of what you make off retirement income. Money can be tight and prevent you from living the relaxed life you hoped to enter upon retirement. In some cases, you might want to consider getting a reverse mortgage. But is it right for you?
What is a reverse mortgage?
A reverse mortgage is a special type of home loan in which you receive money based on the equity of your home. The equity that you have built up over the years of making consistent mortgage payments can then be turned into cash and delivered back to you. And you don’t have to pay back the loan until you are no longer a resident of your home. The amount you receive is determined by your age, equity on the home, and current rates.
What are the benefits?
There are no financial requirements for you to qualify, as long as you can
keep up with your payments on property taxes and insurance. Plus, there are no restrictions on how the money can be used. Because this money had technically already been paid in the past, the cash from the reverse mortgage is not considered income, and therefore not taxed.
There are four different ways you can receive the funds from a reverse
1. as one lump sum
2. as a line of credit that can be used at your discretion
3. monthly payments
4. any combination of the above choices.
What do I need to know that the bank won’t tell me?
According to TIME Magazine, the initial fees for reverse mortgages range anywhere from $10,000 to $15,000, which is deducted from your home equity.
You are also required to meet with a United States Department of Housing and Urban Development (HUD) representative before closing on a reverse mortgage, as they may be able to find other better alternatives for you. Their main purpose is to avoid one of the biggest risks of a reverse mortgage: earning all the money off your home equity before you move out.
Ultimately, it is your decision on whether a reverse mortgage is right for you. The best idea is to consult a professional who has dealt with reverse mortgages in the past, as this option may not be right for you. This person will help you understand the pros and cons of this option before you decide if you wish to pursue it.