Menu Close

Reverse Mortgage

Reverse mortgages are a type of home equity loan that allows homeowners age 62 and older to convert all or part of the equity in their home into cash and eliminate their monthly mortgage payments.

The amount of money that can be converted / borrowed depends on the age of the youngest borrower, the value of the home, and the interest rate.

There are several different ways to receive the proceeds from a reverse mortgage: as a lump sum, as monthly payments, as a line of credit, or a combination of these options.

Borrowers are still responsible for paying property taxes and insurance, however, and must maintain the home in good condition.

Also, if the loan balance exceeds the value of the home when it is time to repay the loan, the borrower or their heirs are responsible for paying the difference.

What Are The Different Types Of Reverse Mortgages?

There are three different types of reverse mortgages: single-purpose, federally-insured, and proprietary.

Single-purpose reverse mortgages are the most popular among senior citizens.

They’re offered by state and local agencies, as well as non-profit organizations, and can only be used for a specific purpose – usually repairing or improving your home.

Federally-insured reverse mortgages, also known as Home Equity Conversion Mortgages (HECMs), are backed by the US Department of Housing and Urban Development (HUD).

They’re the most common type of reverse mortgage, and can be used for any purpose.

Proprietary reverse mortgages are private loans that are not backed by the government. They may have less restrictions than other types of loans, but they’re also more expensive.

Reverse mortgages have high fees, so if you plan on staying in your home for a long time, it might not be the best option.

What Are The Risks Of A Reverse Mortgage?

While a reverse mortgage can be a great way to generate extra income in retirement, there are some drawbacks to consider before taking out this type of loan.

First, it’s important to understand that a reverse mortgage is a loan, and like any other loan, it must be repaid with interest. This means that if you take out a reverse mortgage, your debt will increase over time as the interest on the loan accrues.

Second, a reverse mortgage will decrease the equity you have in your home. This is because the loan balance will increase as the interest accrues, and you will ultimately owe more on the loan than the value of your home.

Third, if you take out a reverse mortgage, you may not be able to leave your home to your heirs when you die. This is because the loan must be repaid when the borrower dies or moves out of the home.

Fourth, reverse mortgages can be expensive. The origination fees and other closing costs associated with these loans can add up quickly.

Finally, it’s important to note that a reverse mortgage is a loan, and like any other loan, it must be repaid. If you fail to make the required payments, you could face foreclosure.

Alternatives To A Reverse Mortgage

There are a few alternatives to a reverse mortgage.

One option is to take out a home equity loan. This is a loan that uses your home equity as collateral.

Another option is to take out a home equity line of credit (HELOC). This is a line of credit that is secured by your home equity.

Another alternative to a reverse mortgage is to sell your home and downsize. This can be a good option if you are no longer able to live in your current home or if you need the money from the sale for other purposes.

Finally, you could also just stay in your current home and make financial arrangements to cover your expenses in retirement. This could include working part-time, downsizing your lifestyle, and taking advantage of government programs like Social Security.

No matter what option you choose, it’s important to have a plan in place for how you will cover your expenses in retirement. A reverse mortgage can be a helpful tool to achieve this goal, but it’s not the only option available.

Sign Up For Our
Weekly Newsletter!

Filled with…

Article of the week
Latest published posts
Recall notices

Click Here To Subscribe