If you own your home outright or are close to paying it off, you may benefit from a reverse mortgage. However, this type of loan isn't for everyone, so consider it carefully. Under certain circumstances, a reverse mortgage is a great way to get extra money to do the things you want. Here is more about reverse mortgages and who is likely to benefit from having one.
What Is a Reverse Mortgage?
A reverse mortgage is a loan that gives you money based on the equity of your home. You can either get the money monthly or a lump sum. While you live in your home, you do not have to make payments on it. The money continues until the equity is exhausted. Reverse mortgages are available through private lenders as well as the government. Once you move or sell the home, then the lender will recoup the money from its sale.
What Are Some Benefits to Reverse Mortgages?
The main benefit is that you receive money and don't have to move out of your home. This benefit is especially important if you are someone who is struggling financially. While you still have to pay for maintenance and property taxes, you will be free of a house payment. The money is tax-free and has no use restrictions.
What Are Some Downsides to Reverse Mortgages?
There are two main downsides to a reverse mortgage. For one, your heirs may not be able to inherit the home. They will also get no money or less money when the lender sells the home. The other downside is that there are other fees involved. Your lender will require you to maintain a certain level of mortgage insurance. A reverse mortgage may also affect your income-based government assistance. They may consider the payments income.
Who Are the Best Candidates for a Reverse Mortgage?
The best candidate for a reverse mortgage is someone who plans on living in their home for a long time. You would also be a good candidate if you have no heirs or your heirs aren't depending on inheriting your home. A reverse mortgage may work for you if you can afford to continue with your insurance and tax fees.
Like when you bought your home, do your research before applying for a reverse mortgage. For many people, these loans provide needed extra income with minimal downsides. If you have heirs, make sure you discuss your intentions with them. If you are considering opting for a reverse mortgage, talk to a lender for more information.