What You Need to Know About a Reverse Mortgage in 2019?
There have been many advertisements for reverse mortgages, filled with promises to help with your cash flow and ease some financial stress. You might find yourself asking if it’s really that simple or if there’s more to it than just putting some cash in your bank account. There is always the fine print to a reverse mortgage, so here are the facts about these reverse mortgages so you can make the best decision for you.
It is not the same as a traditional mortgage
Sometimes called a Home Equity Conversion Mortgage (HECM), this is an option that’s only available to homeowners who are over 62 years of age. This option lets you convert a portion of the equity of your home into cash. Unlike a regular mortgage, you don’t have to repay this amount until you either sell the house or default on your obligation to repay the mortgage on the home (should you still have one).
It can be less expensive than other home equity loans
Taking out a loan on your home isn’t always just about the amount of the loan as there is often fees and other hidden costs associated with the process. With a reverse mortgage, any fees you are required to pay can be taken out of the amount of the loan and don’t have to be paid out of pocket. The closing costs may be higher on a reverse mortgage than on a home equity line of credit but you don’t have to make monthly payments on a reverse mortgage like you would a line of credit.
It should be part of a planned financial future
Making decisions under financial stress will likely lead to poor decisions that don’t truly benefit you or give you what you need. If you’re in a dire situation then a little extra cash flow may not actually fix the problem. Instead, you should consider a reverse mortgage as part of your overall retirement plan instead of during a financial crisis.
You may still face foreclosure with a reverse mortgage
Going through the process of getting a reverse mortgage doesn’t mean you’re immune from legal action against you if you fail to meet the obligations of any mortgage(s) or property taxes you have on your home. If you stop paying these things you are still subject to the same legal penalties as if you didn’t have a reverse mortgage on your home. This is why it’s so important to plan out your financial plans in retirement as if you’re already struggling with monthly payments and use up the reverse mortgage quickly then you might find yourself back in the same dire situation you were when you took out the reverse mortgage.
While a reverse mortgage might sound like a good idea, you should always read the fine print and make sure that what you’re agreeing to is the best thing for your financial future. It is hard to determine how long you’re going to stay in your home for, and how much money you will need to maintain that home but with careful planning a reverse mortgage could help in your retirement.