When Should you go for a Reverse Mortgage?


reverse mortgageI’ve been reading up on reverse mortgages lately because I think it could be a good financial tool for my parents to pay their bills and add to the income that they are living on in their retirement years. I’ve found that it is actually a helpful program that even I may choose to use one day as a part of my retirement planning. Because I wanted to understand more about how reverse mortgages work, I looked up answers to some of the most commonly asked questions about them. Here’s what I found.

What is a reverse mortgage?

When you purchased your home, you made an agreement with your lender concerning your mortgage  rate. You also agreed to make monthly payments toward the value of that home, plus interest. A reverse mortgage is just the opposite; your lender will give you money each month, borrowing from the equity that you have put into that home. Repayment of the loan isn’t due until you pass away or are no longer living in the home.

Who qualifies for a reverse mortgage?

If you are a U.S. citizen of 62 years of age and own your own home, you qualify. Your eligibility for a reverse mortgage (and how much equity you can use from that mortgage) is usually determined by the value of your home, how much of that value you have paid thus far, and the ages of all people who own the home, including your spouse and/or children if you have any. I’ve also learned that to find the best  mortgage  rates for your reverse mortgage, you should compare lenders, just like you did to find your traditional mortgage.

Who shouldn’t get a reverse mortgage?

If you don’t plan to live in your home for much longer, then the reverse mortgage is not for you. This is because the repayment of the loan is due once you no longer use the home as your primary residence and because getting a reverse mortgage does entail paying an origination fee (and possibly other charges). Also, a reverse mortgage is not designed to use to cover a one-time expense, such as traveling or other recreational activities; rather, it should a part of a well-conceived financial plan.

Are there fees?

Yes, reverse mortgages do include fees, primarily the origination fee. You may also be charged a mortgage insurance premium. Your loan accrues interest over time, which means that each month you will be charged interest on not just the principle but also any interest that you incurred on the principle amount previously. Lastly, you are still responsible for the property taxes for your home.

How are payments distributed?

You can choose how you receive payments from your reverse mortgage. If you are using it to pay monthly bills, you can get regular payments each month much like the payments you made on your original mortgage. These payments can be made for a fixed amount of time or until you no longer occupy the home. However, if you would just like the financial security of knowing that you can tap into your home equity, you can opt to use your reverse mortgage like a line of credit, only withdrawing from it when you need to. You can also choose a combination of these two payment methods, which would enable you to receive a monthly payment and also have the ability to tap into your line of credit.

photo by nikcname

Written by Jon the Saver

This post was written by yours truly, Jon Elder. My mission is to help you succeed in your personal finance life. Join me on the journey to financial freedom! You can subscribe through RSS FEED or EMAIL updates. You can also find me on TWITTER
and FACEBOOK
. Happy investing 🙂

Jon the Saver

This post was written by yours truly, Jon Elder. My mission is to help you succeed in your personal finance life. Join me on the journey to financial freedom! You can subscribe through RSS FEED or EMAIL updates. You can also find me on TWITTER and FACEBOOK . Happy investing 🙂

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