Once we start getting older there are a lot of things to think about like figuring out where you’ll spend the rest of your days. If you own a home this might not be a big worry, but what about all the other typical day-to-day expenses? Unless you plan on continuing to work you might be worried about how you’ll retire comfortably.
If you’re over 62 and are a homeowner or homebuyer you might have thought about a reverse mortgage program, or at least seen the infomercials about it. To quickly sum it up, a reverse mortgage is a loan that lets you to tap into a portion of your home equity; it’s sort of like a revolving credit line.
Here are a few reasons why a reverse mortgage program could be could be good for you.
- Your reverse mortgage funds are not taxable and they won’t affect your social security or Medicare benefits.
- There’s no monthly payment.
- You still keep the title to your home.
- Fixed and variable rates are available on the loan.
- You can choose how to receive your payments.
There are always two sides to the story though; here are a few cons of having a reverse mortgage.
- There are several fees associated with a reverse mortgage program like closing costs, appraisal and origination fees, along with a mortgage insurance premium.
- The amount you owe grows over time as interest is charged on your balance which then gets added to your monthly dues. As the funds paid to you and interest accrues, the amount you owe on the reverse mortgage grows.
- Your “loan” is due if you move out of the home or sell it. If it is not sold, upon death the last surviving borrower will owe your balance.
There are three types of reverse mortgage loans; single purpose, home equity, and proprietary reverse mortgages. Each comes with the good and the bad and if you’re a homeowner, or future homeowner, it’s important to remember that there also other options like re-financing your mortgage or applying for a home equity line of credit.
To read more about the pros and cons of reverse mortgages visit US News.