Is a reverse mortgage a good idea or not?
A reverse mortgage is used by older homeowners that doesn’t require your typical monthly mortgage payments. So how does it work? Let’s go through it together.
A reverse mortgage is paid off only when the borrower has died or moves out. You should only consider a reverse mortgage as a last resort source of income, although it’s a great planning tool for retirees.
For some a reverse mortgage is used as a way to rid them of their mortgage or for those who are in desperate need of some cash for other unexpected expenses
There are other motivators for applying for this kind of mortgage. For example; some may want to pay off high interest debts or worse, they may have a medical situation that has come unexpected.
How does it work? The bank will make payments to the borrower on your behalf for the remainder of your life, this is based on a percentage of the home equity that is accumulated throughout. As mentioned the loan doesn’t need to be paid back till either the borrower dies or moves out of the home.
To be eligible for this particular mortgage you would need to have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan.
Pros and Cons
No monthly payments
Proceeds can be allocated to paying off debt or unexpected expenses
The funds can be used toward your existing mortgage
Improve your cash flow
Fees and cost at closing are extremely high
Borrower is still responsible for maintenance of the home, property taxes, and home owners insurance
Your wish to pass along your home to let’s say your grandkids is eliminated.
If you fail to comply you may be required to repay your mortgage early.
Thinking of applying for a reverse mortgage or have further questions, don’t hesitate, contact our office and speak to one of our mortgage specialists.