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July 28, 2014
The retirement years are supposed to be golden. There’s time for travel, relaxation, trying out new hobbies, and perhaps even starting a whole new career. Financial worries shouldn’t factor in heavily how you choose to spend your retirement. But for many people, that’s exactly what happens. Reverse mortgages for seniors might be the answer.
A reverse mortgage gives you access to what’s already yours — the equity in your home. If your primary residence is paid off, or paid down substantially, that could be a sizable amount of money.
As with most opportunities, there are pros and cons to a reverse mortgage. Here’s what you need to know, to help make the best decision for your situation.
The equity you already have in your home may boost your lifestyle.
What is a Reverse Mortgage?
Reverse mortgages for seniors allow homeowners to tap into the money they’ve invested over the years, but without putting the house on the market and moving someplace else. You could receive regular payments from the equity, or opt to get a single, lump sum disbursement.
If you’re 62 years of age or older, you may qualify, as long as there is enough equity in the home and certain other conditions are met.
FHA’s Home Equity Conversion Mortgage, or HECM, is the only reverse mortgage backed by Federal Government, according to the U.S. Department of Housing and Urban Development. To qualify through FHA, you must meet personal, property, and financial requirements.
Pros of Reverse Mortgages for Seniors
In the usual situation, you’d sell your home before reaping the rewards of equity. A reverse mortgage lets you gain access to your equity now, instead of later.
You don’t need to sell your home, and can continue living there for as long as you like. But you can use the proceeds from the reverse mortgage to buy a new primary residence, if you want to.
There’s minimal waiting to access your equity. Unlike selling real estate on the open market, you don’t have to worry about whether you’ll find a buyer. As long as you qualify for the program, you’ll have regular payments or a lump sum in a short amount of time.
Think it through and talk with a reputable lender before taking the plunge.
Downsides that You Should Consider
A reverse mortgage is technically a loan against the equity in your home. If you need to leave your home for a year or more, such as with a hospital or skilled nursing facility stay, the entire loan could come due and payable.
Also, your heirs could forfeit the home. If there’s no equity left at the time they would inherit, the house would be sold to repay the reverse mortgage loan. If the property value declines, there’s little or no chance of heirs selling the home to repay the loan, while keeping the house.
There are also costs involved. FHA requires mortgage insurance, closing costs, a loan origination fee, a servicing fee, and other costs that may vary.
There is more than one type of disbursement plan with reverse mortgages for seniors. Payments may come on a fixed schedule, at a schedule that you decide,
If you decide a reverse mortgage is right for your lifestyle, you’ll need a reputable lender. HUD offers a list service that can help. But even among those, you’ll likely find that some are a better fit than others.
The fees associated with a reverse mortgage vary by lender, and so might other policies, says AARP. So it pays to shop around and not settle on the first lender you find.
Although you want the lowest fees possible, you’ll also want an experienced lender that is committed to your needs. And no lender should try to push you into a reverse mortgage. If you aren’t given solid pros and cons to consider, you should probably keep looking.
A reverse mortgage is a big step, and one that shouldn’t be taken lightly. There’s a lot to learn. No two loans are identical, and you might even decide that it’s not right for you.
If the idea of financial freedom using the equity that’s in your home sounds like a great idea, then this might be a good time to learn more. As we’ve explained in another article, “Do Reverse Mortgage Costs Make This Product Too Good to Be True?” the fees should only be a burden if you already have plans to leave your home within a few years.
If you’re settled in your home, and just want to look into options for using the equity now instead of letting it benefit the lender only, a reverse mortgage might have what you need to make senior living everything you hoped it would be.
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