Reverse mortgages are an awesome and profitable source for anyone who may want to increase their income potential for retirement. In most cases, the largest personal asset a retiree owns is in their home. Most retiree’s residences are all paid off. This all culminates in increasing their monthly income all for staying in her or his residence.
Once you’re sixty-two the amount you may be eligible for has many factors such as your age, your interest rate, and mostly the value of your home. The more value your home is worth and the older you are and the lower your interest rate can be will all be benefactors to the loan amount. These qualifications include:
- You must be at sixty-two years old or older as well as own your home, and you have to live in that home as your primary residence.
- Must have enough equity in the home for you to capture the reverse mortgage loan amount you need.
- Must pay the homeowner insurance and taxes on the residence.
- Maintain the house in all physical and structural states.
- In the case of a HECM, attending financial counseling with an approved hud agent is required.
Are you considering a reverse mortgage for your home? There are many reasons why someone may decide this is the best situation for them. In today’s blog, we’re covering the top reverse mortgage pros and cons you need to know.
Advantages of a Reverse Mortgage
Getting cashed out to remain in your house sounds like a worthwhile proposition, whether you are living married or unmarried. But how can you possibly receive that? There are methods to collect. Desirably a lump sum is a form of collection where the proceeds are collected all at once when your loan gets finalized. This option comes with a fixed interest rate.
If you decide on a monthly income instead of a lump sum then you’re leaning more towards an annuity payment also known as a “ tenure plan”. As long as a borrower remains in the home your lender will make steady monthly payments to the borrower. A borrower may prefer the terms of payment in a term payment where the borrower can set the period of the term such as 3 years.
Reverse mortgages can be set up similarly to a credit card with a line of credit from the bank which can be accessed on an as-needed basis. This is a solid avenue for people in which their mortgage is their best equity and can cover basic costs.
If you want a strong and steady stream of revenue, converting equity from your house into an income stream all while living in your home, this is an avenue for you.
Earned income is taxable, a loan is not. A reverse mortgage falls under an IRS tax-free scenario. In fact, a reverse mortgage has no effect on government assistance.
Disadvantages of a Reverse Mortgage
Some disadvantages may include not keeping up with monthly costs. Losing your residence over this can be troublesome. Goes without saying, if you don’t pay bills, you may face foreclosure.
A notable difference that comes with a more traditional styled loan, is that the debt would decrease on a monthly basis. Because you would not have mortgage payments with a reverse mortgage, a loan balance would grow month over month.
Other costs and other interest could increase the debt to surpass a residence’s market value. Let’s say you would want your kids to inherit the home, they may be faced with an expensive bill.
Some good news is that you won’t ever need to pay the lender any more than the proper market value of the residence. On another note, the government is tired of paying the difference.
On that note in 2009, a reverse mortgage loss cost from the federal housing administration, Cut into the reserve funds costing twelve billion dollars. This is the same fund that helps ensure newcomers that are involved in the low-income housing market.
Necessarily, a reverse mortgage redistribution of wealth from the lower class to the upper-middle class. This all originated in October, eight years later. Newer regulations require any potential and prospective borrowers to invest in higher upfront costs and lower the bottom-line amount that may be borrowed.
A reverse mortgage borrower on average withdrew sixty-four percent of their equity according to the Wall Street Journal that will decrease to fifty-eight percent.
This can make reverse mortgages a bit less attractive, but in most cases with proper planning, this could be an amazing avenue for you to receive benefits for just owning a home.