A reverse mortgage is the topic of today's discussion. I believe you must have heard of reverse mortgages or you might have probably come across it one way or the other. If you're here to learn more about a reverse mortgage with its pros and cons? then you're in the right place.

I'll try to make this article understandable to anyone without any knowledge of mortgages or even real estate.

This will be a lengthy article due to how in-depth I want to go regarding this topic of discussion.

Without wasting much time, let us dive into the topic. But before I go straight to what reverse mortgage is, there are some key major things we need to look out for.

One of the key things I want you to understand regarding reverse mortgage is the fact that reverse mortgage is ideal for some situations, which makes them unsuitable for senior homeowners. The upfront cost of a reverse mortgage is very expensive and you must put that at the back of your mind when moving to a new home.

One thing I always tell people is to consider family first when making decisions that involve reverse mortgages. You need to consider spouses, partners, roommates, and heirs by knowing fully well that your decision of taking a reverse mortgage may affect them.

But one thing that makes it a great option is the fact that when you make the decision of taking a reverse mortgage under the right condition, the mortgage can serve as an excellent tool or option for long-term financial stability in retirement.

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Understanding The Pros and Cons Of Reverse Mortgage ( Reversed Mortgage Explained)

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What Is A Reverse Mortgage?

According To Investopedia. A reverse mortgage is usually a form of loan meant for homeowners from the age of 62 and above. This loan is meant for older folks who want to borrow against their home equity without having to make any form of monthly payments. This mortgage product can be very helpful to seniors who are financially handicapped when it comes to taking care of living expenses. If you're an individual who is looking forward to retirement, this can help in the diversification of your source of retirement income and hedge you against any form of risk such as market downturns and outliving savings.

When you take a reverse mortgage, it means that you'll be spending a significant part of your home equity on loan fees and other forms of interest, which in the long run, can put your spouse, and heirs at risk of losing money and a place to live.

In other to avoid any of this, I need to ensure that you properly understand the disadvantages and advantages of taking a reverse mortgage in other for you to make the right financial decision.

When Is The Right Time To Take Reverse Mortgage?

As I have mentioned before, a reverse mortgage can serve as a valuable problem-solving tool for seniors who actually understand how all of these loans work.

As a senior, if you know that you have a plan of using your equity, you can maximize it in different ways by ensuring you put the following into consideration.

Below are Four Different Situations Where You Can Put Your Loan Into Good Use.

When You Don't Plan To Move Too Soon

As a senior, you must remain in your home for the near future if you consider a reverse mortgage as an option.

This rule of thumb isn't unique to reverse mortgages; it also usually doesn't make sense to get a new forward mortgage (like a refinance loan) on a home you're about to sell. The reason? Loan closing costs.

In a normal sense, it makes no financial sense to pay a huge sum when you know you're going to be moving out before the loan's financial benefits outweigh the costs. 

With past experience from individuals who have taken reverse mortgages, moving is one of the major events that make reverse mortgages due and payable. After you must have paid different fees such as seller's fees and repaying your HECM, the proceeds from selling your house may not be enough to support your next step, whether it's downsizing, assisted living, or paying a relative for caregiving.

When Your Spouse Is Over 62 Years Or Older

If you've been following this article from the very beginning, you'll remember that I made mentioned that reverse mortgages are for seniors within the age bracket of 62 and above. If you're an individual that is married to a spouse who is yet to be 62, then getting a reverse mortgage is not ideal. Why did I say so?

When you look at it, you'll realize that different new laws protect non-borrowing spouses from losing their homes if they eventually die. In many cases, non-borrowers cannot get money from the loan after the borrower dies. That means no more credit draws or monthly payments and the surviving spouse might lose an important source of income.

If you and your spouse are each 62 or older and named as owners on your home's title, getting a reverse mortgage together might be a good choice.

When You Feel You Can Meet The Financial And Physical Requirement Of Home Ownership

When we talk about meeting the requirement for home ownership, it simply involves keeping up with your property taxes, home insurance, and home maintenance essential if you have any form of a reverse mortgage.

If for any reason as a homeowner you couldn't pay up and you fall behind, the lender can declare your loan due and payable.

Payment of property taxes is very important, I believe you're aware of that already. If you can't pay your property taxes, the county tax authorities have the right to replace a lien on your home. This means that they have the power to possess that property and even sell it off to recoup the taxes owed.

 The tax authority’s claim to your property supersedes the lender’s. So, if you don’t pay your property taxes, you’re putting the lender’s collateral (your house) at risk. That's why lenders require borrowers to stay current on taxes. Hope you understand how taxes can affect your reverse mortgage if you fail to pay.

When Your Home Is Just An Asset.

Some homes are just assets and properties like that are always not easy to be claimed by the lender even if there is a need.

Some of the homes out there have what is known as sentimental value, homes like that might have been in the custody of a family for generations and this means that the family lineage might not want to sell that property or lose the such property.

The heir of those properties owners might want to pay off any reverse mortgage and keep the property. With this, the loan does not complicate the entire thing. If your home is just an asset, though, then leveraging it for a more comfortable retirement might be the best way to use it.


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