Pros of Reverse Mortgage
A reverse mortgage could help you stay afloat if you're having trouble meeting your financial responsibilities. Here are some advantages of choosing a reverse mortgage.
- Assists in ensuring your retirement
Reverse mortgages are a great option for retirees who have accumulated significant wealth in their houses but little in the way of cash savings or investments. With the help of a Refinancing Reverse Mortgage, you can convert an otherwise unusable asset into cash that you can use for retirement costs.
You may remain in your house.
You can continue to live in the property and still receive cash from it, so you don't have to sell it in order to liquidate your asset. This implies that if you had to relocate, you wouldn't have to worry about perhaps downsizing or being priced out of your community.
- You'll pay off your current mortgage.
A reverse mortgage can be obtained even if your house isn't completely paid off. In fact, you are able to pay off an existing mortgage with the money from a reverse mortgage. This makes money available to use for other expenses.
Cons of reverse mortgage
What are the drawbacks of a reverse mortgage then? Despite what can appear to be a lot of advantages, there are also significant risks to take into account.
- Foreclosure may cause you to lose your home.
You must be able to pay your property taxes, homeowners insurance, HOA dues, and other costs of house ownership in order to be eligible for a reverse mortgage. Additionally, you must spend the most of the year residing inside the house as your primary residence.
You run the risk of defaulting on the reverse mortgage and losing your house to foreclosure if, at any point during the loan term, you fall behind on these payments or live elsewhere for the bulk of the year.
- Less Might Be Left to Your Heirs
A crucial step in creating generational wealth is home ownership. However, a reverse mortgage typically necessitates the sale of the house in order to pay off the debt. Your heirs will be obligated to pay the remaining balance of the loan upon your death, or 95% of the home's appraised value, whichever is less. Typically, this entails selling the house or giving the lender the property in order to pay off the loan.
Not to mention, a reverse mortgage depletes the equity in your house. There might not be be any equity left over for your heirs by the time it needs to be paid off.
- It Costs Money
A reverse mortgage may not require you to make payments, but there are still a lot of costs involved. You have to pay an upfront insurance cost in addition to your regular taxes, insurance, and HOA dues. This is typically 2% of the appraised value of your house. At closing, you will additionally pay origination costs. You do have the choice to add these expenses to your loan balance, but doing so will reduce the amount of money you get.