A reverse mortgage allows homeowners aged 62 and up to borrow against the equity in their home. A reverse mortgage allows a homeowner who owns their home outright or has significant equity to withdraw a portion of their equity without having to repay it until they leave the home. The homeowner is responsible for paying these costs, but the lender is still required to consider the homeowner’s equity as a source of income.
Reverse Mortgages Reduce Debt Loads
Reverse mortgages work well for homeowners who don’t qualify for other types of loans. A reverse mortgage is an option that might help you repay your debt. According to the Center for Retirement Research at Boston College, the typical retiree on Social Security receives $2,711 a month. This is less than the amount of money needed to cover many basic expenses.
Homeowners in this situation are likely to have high debt-to-income ratios — that is, they have debts larger than their incomes. This is typically not the case with reverse mortgages.
Here’s an example: a homeowner who receives Social Security has a net worth of $300,000. The homeowner has enough debt to pay back $1 million over the next 15 years. Under this scenario, the homeowner would need to tackle at least 30 years’ worth of debt to retire.
Benefits Of Reverse Mortgage
- When many seniors retire, their income drops significantly, and monthly mortgage payments can be their largest expense. With a reverse mortgage, you can supplement your income while still paying your bills.
- A reverse mortgage allows you to age in place rather than relocate to a more affordable home. Furthermore, while a reverse mortgage has a cost, it may be less expensive to obtain a reverse mortgage than to relocate and either buy another home or rent in a new location.
- Borrowers can pay off reverse mortgages sooner, but they typically expire when the borrower moves, sells the home or dies. In an estate situation, heirs have several options: sell the property to repay the debt and keep any equity above the loan balance; keep the home and refinance the reverse mortgage balance if the property’s value is sufficient; or settle the loan by returning the title to the lender if the debt exceeds the property’s value.
- One of the most appealing aspects of reverse mortgages is that payments are made to you for as long as you reside in your home. This is not like a traditional forward mortgage, where you must make monthly payments. You get money from a reverse mortgage. The loan is repaid when you sell your home, move to another primary residence, or the last borrower leaves the home. Borrowers must continue to pay property taxes, homeowner’s insurance, and home maintenance.
In short, A reverse mortgage is a one-of-a-kind financial tool that allows borrowers to access their home equity without the burden of monthly mortgage payments. You can use a reverse mortgage to supplement your income in retirement while remaining in your home. Now when you know the benefits of reverse mortgage, why don’t you reach out to us.