Figuring out If a Reverse Mortgage Is Right for You
Published July 27, 2016
The thought of giving up control of your home after countless years is a daunting proposition, to say the least. However, change isn’t always a bad thing, especially in the later years of your life.
With this in mind, let’s connect with some of the leading financial sources and find out if the reverse mortgage path is the right one for you and your family.
Whether you’re simply getting to the point where taking care of a home is too much of a burden on you and your loved ones, or you’re just exploring your options and considering how to generate some additional income, a reverse mortgage could be the tool that helps you achieve these goals. However, without the right approach, and some keen insight, you could be walking into a fiscal nightmare that’s sure to wreak have on all of these plans.
A reverse mortgage isn’t just instant access to a large stream of cash without consequence, despite what all of the financial smooth talkers and dealers would have you believe. The truth of the matter is that this decision comes with a variety of concerns and variables that must be addressed in order to make a sound call regarding the future of your home.
Is this influx of money meant to stabilize your living conditions permanently? Are you just looking to generate some return on an investment home and you don’t have time to put it up on the standard real estate market? What if the perceived value of your home doesn’t quite match up with what the lending party can offer? Is this still a good deal?
As you can see, there are plenty of questions that can leave even the most levelheaded thinkers full of stress and anxiety. To keep you on the right path and avoid the negative effects of a sometimes complex process, let’s break the reserve mortgage down step by step. This way, you’ll have a big picture view guiding you along and ensuring you don’t make a decision that ends only in regret and frustration.
The Basic Premise Behind the Reverse Mortgage
Of course, bouncing around all of the conceptual concerns and advantages doesn’t do you much good if you’re left asking a fundamental, yet highly important, question; just what the heck is a reverse mortgage and how does it work? According to the National Reverse Mortgage Lenders Association, the particulars of this financial tool aren’t that complex.
Essentially, the reverse mortgage is a lending agreement available only to those 62 years of age or older that allows you to convert all or part of the equity into your home into cash. The big key here is that the payment stream is literally reversed. Instead of paying the bank or credit union a monthly amount, the lending agency instead pays you a fixed amount in return repayment of the loan and in some cases the eventual financial control of your property once you sell or vacate the home.
The Benefits of This Tool
Aside from the obvious benefit of turning something intangible – in this case the equity held within the listed value of your home – into actual cash, what other reasons are there to consider a reverse mortgage? As Carole Fleck of AARP explains, the ability to generate this form of income can be a veritable “lifeline” for elderly individuals in need of additional cash flow.
Whether it’s mounting bills or the realization that you didn’t put enough away for retirement in your younger years, the truth of the matter is that sometimes money can be a little tight are you leave behind your working years. Because of this, reverse mortgages provide an outlet that not only relieves this pressure, but also has the potential to help fund some other pursuit in the later years of your life, like traveling. After all, there’s at least some truth in the old saying that “you can’t take it with you.”
Additionally, as long as you still live in your home, you’re not required to begin repayment on the loan. This clause ensures that you’ll never be left without a place to hang your coat until you’re ready to take the next step in your life. It is important to note though that you’ll still be held liable for property taxes, homeowners insurance, and other obligations, like condominium fees.
An Imperfect Solution
Unfortunately, the reserve mortgage process isn’t completely devoid of risk or concern. In their look at why reverse mortgages might not be the right choice for elderly citizens, the experts at U.S. News & World Report highlight several reasons for thinking twice before signing on the dotted line.
First up is the fact that your heirs will be left with no claim to the house when your time has come and gone. Naturally, this is a specific concern, but it’s still applicable to those with living relatives and family members that hold some desire to keep the home within the family.
Aside from the familial issues presented within the transfer of ownership is the fact that at some point, if you’re not considered to be permanently living within the home, your lender can trigger the repayment clause. This means that even if you haven’t sold the home or passed away, you’ll be forced to begin repayment.
Finally, there’s plenty of lenders that can’t wait to take advantage of the elderly, so navigating the waters of this, or any, financial agreement can be tricky. If you’re not prepared to find the right deal or work with someone you trust, don’t be surprised if you find yourself locked into an unnecessarily high interest rate on your loan.
Making the Right Call for Your Situation
As you can see there’s plenty of benefits and concerns within the reverse mortgage process. However, that doesn’t mean that your only options are to either jump in headfirst and hope for the best or unreasonably fear this proposition.
Instead, take some time to sit down with your friends and family, as well as a trusted financial professional. This way, you can explore all of your options at your own pace. From here, if the timing is right and you’re ready for the change, you can pull the trigger on this mortgage knowing that you not only did your due diligence, but also made your choice with knowledge and peace of mind on your side.