Many senior homeowners think about taking out a reverse mortgage on their home. You may have a really good reason for wanting to do it. But there are some things that you should consider first.
A reverse mortgage is a loan that you take out on your home. Your home has to have equity for you to take one out. It also must be your primary residence. There are other stipulations to taking out a reverse mortgage. You need to maintain the house until the loan is paid off. You don’t always have to pay the loan off though.
Here are some tips to consider before you take the plunge.
Reverse Mortgage Tips
Know if You Should
While you may think you have a good reason for taking out a reverse mortgage, there are some that aren’t worth it. One good reason is to ensure you have a reliable income for a while. You can receive your money in monthly installments, or in one lump sum.
If you are planning on waiting to file for Social Security, you may want to choose for your reverse mortgage to be delivered in monthly installments. This can help you with budgeting your money.
You can also use the money to pay off debts or renovate your home. You may even consider a reverse mortgage if you have medical bills.
Some bad reasons include buying a risky property or for short term financial problems. If your home doesn’t have enough equity, it might not be worth it.
Talk With a Counselor
There are specific counselors that specialize in reverse mortgages. Not only will they be able to help you decide if it is a good choice for you, they can also help you so you don’t get scammed.
Unfortunately, there are people out there that will scam you. You want to make sure you choose a lender that is legit and won’t take your money from you.
Know the Costs
While you don’t necessarily have to pay the loan back, there are costs that come with it. You will still need to pay for the upkeep of your home. You also still need to pay your insurance and taxes as well. Failure to do these can lead to a default on your home.
There are also costs that come with getting a reverse mortgage. Some of the fees include closing costs and interest rates. Even though the money you will receive is tax free, it will gain interest. Speaking with a counselor can help you understand the costs and fees involved.
Talk it Over With Your Children
Unfortunately, death is inevitable. It’s common for your children to inherit everything that you own. This includes your home and the reverse mortgage on your home. While you don’t have to repay the loan if you’re alive, it does need to be paid off in some circumstances.
If you sell your home, or die, the loan will need to be paid off. Thankfully, your children may not have to pay the full loan amount. If you took out a reverse mortgage for $250,000 and they sold your home for $200,000, they wouldn’t have to pay the other $50,000.
You should discuss this with your children or whoever it will be that inherits your belongings. This can help prepare them for what will come. It can also prevent any misunderstandings or arguments in the future.
Sometimes your children can decide to keep the home, but they must pay off the loan. So this is another topic you may want to discuss with them.
Choose the Right Lender
Ideally, you want to choose a lender that fits your needs. There are lenders that specialize in reverse mortgages. These are the ones that you want to use. Be cautious if a lender tries to offer you other services or charge you an outrageous amount, these can be signs of a scammer.
You might also want to consider a lender that offers a fixed interest rate. It’ll help with interest rates when it’s time to pay the loan off. It can help lower the cost if you choose one with a fixed rate.
You should research a lender and talk to multiple lenders before making a final decision. You can get suggestions and referrals from friends and family, or search for some lenders online. Make sure you are getting the best deal that you can.
Plan for Your Future
If you decide to take out a reverse mortgage, you should probably plan on not moving out of your home. Moving out can default the loan, causing you to owe the balance of your loan and the interest as well.
If you keep your home in great shape and perform upgrades as needed, it can help increase the value of your home. This is very important when your children sell your home.
If your children would like to pay off the loan and keep your house, you may want to help them. If you are financially able to, you may want to consider making payments towards the loan.
Making small payments can help lower the amount owed, making it easier for your children to keep the house and pay off the loan. These are all things you should discuss with your children, a counselor, and the lender.
If you are a senior and a homeowner, you may be able to take out a reverse mortgage on your home. Ultimately, the decision is yours to make. There are quite a few pros and cons for you to consider though.
There are a lot of homeowners that can benefit from a reverse mortgage, but there are others that may not actually need one. Speaking to a counselor about your options, selling your home might be more beneficial.
If you do decide to take out a reverse mortgage, it should be a fairly simple process. Remember to choose a reputable lender that specializes in reverse mortgages. It’s your future, you make the decision.