A reverse mortgage is almost the opposite of a regular mortgage.
With a regular mortgage, you take out a loan so you can buy a house and then you make small payments on it until you pay off the mortgage completely.
With a reverse mortgage, however, you already own the home, and have been living there for a while. When you initiate a reverse mortgage, a lender loans you money against the value of your home, and you still get to live there.
With some reverse mortgages you can receive the money in the form of periodic payments, almost like paychecks for a job. With others you can use the equity in your home like a checking account and use the money whenever you want. There are even loans that allow you to do both.
But what are the advantages to a reverse mortgage, and who is eligible?
Am I eligible for a reverse mortgage?
An important thing to know is that not all people are eligible for a reverse mortgage. Reverse mortgages are typically meant for older people who may be retired, have limited income, and/or have paid into their house for a long time.
That’s because the money the lender gives you does eventually need to be repaid, but only after you either pass away, sell the home, or leave the home. In the event of your death, the reverse mortgage will have to be repaid in some way by your heirs (typically by selling the home or transferring the deed to the lender).
Here are some of the typical requirements to be eligible for a reverse mortgage:
- You must be at least 62 year old
- Your home should be your primary place of residence. This means you can’t take out a reverse mortgage on a vacation home.
- You have to either own your home outright and have no more mortgage payments to make, or have at least 50% equity in your home.
Perks of getting a reverse mortgage
Reverse mortgages can be great options for people who are retired or have a limited income. If you have no or little money coming in, but your home is completely or mostly paid off, you’re essentially living inside of a potential source of income.
By getting a reverse mortgage, you’ll see more money coming in without having to look for a new job or move out of your home.
One great and unexpected thing about a reverse mortgage is that you can use it to pay off the last parts of your regular home mortgage. If your reverse mortgage is approved and you still have some payments to make, you can use the money you get from your reverse mortgage to make those payments. If you do this, your home is basically paying for itself.
Even if you have savings tucked away that you could theoretically use to live, you may still want to consider a reverse mortgage. If you get a reverse mortgage, you won’t have to dip into your savings as much as you would have without a reverse mortgage. This can grant you peace of mind, so you can rest assured that you can live comfortably and still have a rainy day fund in the case of an emergency.
Are there any downsides to a reverse mortgage?
Unfortunately, reverse mortgages aren’t all sunshine and rainbows. There are some downsides associated with reverse mortgages.
- The biggest negative is that you are borrowing against the value of the home that you’ve put so much money into for so long. Your home can be a vast source of wealth for you, and you may not want to lose that financial asset.
- Additionally, you also have to make sure that you maintain the home, take good care of it, and pay all your property taxes. These may seem like basic things to some people, but they can pose significant burdens to others.
- Furthermore, the fees associated with a reverse mortgage can be high, which could lower the net amount of money that you get from it.
Contact Adam Diamond Law to learn more about reverse mortgages
There are a lot of reasons to consider a reverse mortgage, but there also reasons to be cautious. Deciding whether or not to get a reverse mortgage is a big step, and it’s important to talk to a real estate lawyer to help you make your decision. Contact Adam Diamond Law today to discuss your home and see whether a reverse mortgage is right for you.