Retirement should be a time of celebration when your hard work finally pays off. However, for many people nearing this stage of life, long-term financial stability becomes a concern. If you’re a homeowner aged 62 or older, a reverse mortgage could provide extra cash to cover living expenses, home improvements, or health care costs.
What Is a Reverse Mortgage?
A reverse mortgage is a type of loan that lets seniors convert a portion of their home equity into cash. Unlike a traditional mortgage where you make monthly payments to a lender, a reverse mortgage provides you with payments while you continue to live in your home. When you sell your property or pass away, the loan is repaid.
How Does a Reverse Mortgage Work?
The loan amount you’re eligible to receive is based on your home’s value, age, and current interest rates. You can receive funds as a lump sum, monthly payments, or a line of credit. During this time, you won’t be required to make monthly payments on your mortgage. However, you’ll need to continue paying property taxes and homeowners insurance.
What Are the Benefits of a Reverse Mortgage?
Many seniors choose to take out a reverse mortgage loan so they can continue living in their homes without the burden of mortgage payments. Some of the other advantages include:
- Access to tax-free cash since a reverse mortgage is not considered taxable income.
- No credit score requirement, making it easier to qualify.
- Flexible payment options, ranging from a lump sum to an ongoing line of credit.
- FHA insurance protection that guarantees you never owe more than your home is worth, even if its value decreases during the life span of your loan.
What Are the Potential Drawbacks of a Reverse Mortgage?
Before you decide to take out a reverse mortgage on your property, let’s address some of the potential drawbacks to make sure it’s the best solution for your circumstances:
- Reverse mortgages often have higher fees than traditional loans. These include closing costs and mortgage insurance.
- As loan interest accumulates, you may see a decline in your home equity. This can decrease the amount you’re able to leave behind for your heirs.
- While you may not need to repay the loan in your lifetime, it still needs to be repaid. When you move out or pass away, your home must be sold to cover any outstanding balance.
- In addition to paying property taxes and insurance, you must keep up with routine home maintenance. Failure to do so could result in foreclosure.
Still wondering if a reverse mortgage is right for you? If you plan to stay in your home for the long term and have substantial home equity, it might offer the financial relief you’re seeking. Before making a decision, consult with a HUD-approved reverse mortgage counselor to explore all your options.
Content is for informational purposes only and is not intended to provide legal or financial advice. The views and opinions expressed do not necessarily represent the views and opinions of WesBanco.
Sources: NCOA.org, Aplaceformom.com
Written and Published by:
David Ackermann
NMLS #: 771355
Mortgage Loan Officer
WesBanco Bank
W: (513) 901-7029
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