If you're retiring and finding it difficult to make ends meet, a reverse mortgage may be an attractive option. Reverse mortgages aren't free, either, so it's important to weigh the pros and cons before signing anything.
High expenses, including closing costs and mortgage insurance, are charged by reverse mortgage lenders. The total cost of a fha reverse mortgage could go up over time if the loan's interest rate is variable.
It's important to weigh the pros and cons of a reverse mortgage before deciding whether or not it will help you keep your house in retirement.
A Reverse Mortgage Is.
If you've paid off your mortgage or have a small remaining balance, you may qualify for a reverse mortgage. Only homeowners over the age of 62 are eligible for a reverse mortgage, and the money can be taken out in a single amount or as an open line of credit.
With a regular mortgage, the balance drops as monthly payments are made, but with a reverse mortgage, the balance rises as interest and other costs are added. No payments are due until the property is sold because of the borrower's death or relocation.
Reverse Mortgages: The Pros and Cons
It's crucial to know the facts about a reverse mortgage before applying for one, despite the fact that it may seem like a smart method to get money in your senior years. Consider the following when weighing the pros and cons of a reverse mortgage vs other types of loans.
Pros
A reverse mortgage could be the lifeline you need if you are concerned about paying your monthly bills or other essential responsibilities.
A reverse mortgage can help an elderly or disabled homeowner who would otherwise have to move out of their home remain in it.
If a borrower abides by the terms of their loan, they won't have to make a payment until the property is sold.
When someone passes away, their heirs usually only have to pay the difference between the value of the home and the reverse mortgage sum.
Many reverse mortgages do not demand a certain level of income or credit.
Cons
However, many homeowners find that the drawbacks of a reverse mortgage exceed the positives. Before getting a reverse mortgage, you should think about the potential drawbacks.
Numerous reverse mortgage scams target elderly people who are struggling to make ends meet.
Origination fees and mortgage insurance of up to 2.5% of the home's appraised value are typical in reverse mortgages.
The cost of borrowing money can rise steadily if the interest rate you're paying fluctuates.
Since interest is added to the principal balance rather than being subtracted as the loan is repaid, the total amount owed by the borrower will grow over time.
Reverse mortgage interest is not tax deductible like regular mortgage interest.
Taking up a reverse mortgage can lessen the amount of money your heirs receive from your estate.
