As the United States deals with a possible recession and ongoing inflation, many Americans are examining their budgets to see how they can raise some extra cash.
For homeowners at least 62 years old, a place could be right under your nose. You’ve built up a significant amount Home is equalYou may be able to borrow against it through a Reverse mortgage. But should you? We asked a few experts for their opinions.
Start exploring your reverse mortgage options here to see how much you can get
Reverse mortgage advantages and disadvantages
A reverse mortgage can be a Helpful solutions If you have paid off your home and want to supplement your income in retirement. They give you access to your equity without needing to sell your home, and you don’t need to pay off the loan until you move, sell or die.
However, they do come with one Some potential drawbacks. “Ultimately, loan terms can put homeowners, spouses and heirs at risk of losing money and housing,” says Chuck Chezka, a certified estate planner and founder of Macro Money.
Reverse mortgage professionals
It can supplement retirement income No payments until you move, die or sell the home This can save you from having to borrow more than the home is worth You can liquidate equity without selling the home
Reverse mortgage cons
You may lose home equity and reduce your heirs’ inheritance You still have to pay property taxes, homeowners insurance, HOA fees, etc You must have the home as your primary residence or the loan will become delinquent
When is a reverse mortgage worth it?
So should you get a reverse mortgage? Sometimes it can be worth it, experts say.
“A reverse mortgage may be worth it to a homeowner if they meet the following criteria: they have enough equity in their home, they plan to stay in the home for more than five years, their current income is not enough to cover all of their expenses, and they There is no other source of retirement income that can cover the expenses,” says Carmelo Carrasco, a realtor and co-founder of Accel Property Management.
He added, “A reverse mortgage may also be worth it for some homeowners if they are able to use the additional funds from the loan to purchase an annuity, invest in stocks or bonds, or invest in a guaranteed income stream.”
Additionally, it can help those who want a source of backup funds. “Often, people think reverse mortgages are a last resort and that couldn’t be further from the truth,” says Jay Dacey, president of J Dacey Mortgage Team Inc. With the stock market down, they can leverage their equity instead of selling the investment,” he explains.
Explore your reverse mortgage options to see if it’s worth it for you
When an alternative may be better
On the other hand, a reverse mortgage option may be better in some situations.
“Some parents want to leave every penny of equity to their heirs, and a reverse mortgage takes a monthly bite out of that equity as the mortgage balance grows,” says Kevin W. Walton, a reverse mortgage loan originator and Registered Social Security Analyst
This would not be best suited if you plan to rent out the property or if you want to pay off the balance before then. Walton explains, “You can’t rent out the property or use it for a BNB. Once you stop living in the property as your owner-occupied residence, the loan must be repaid.
“Additionally, if a child or children live with you and you die, the loan must be paid off or the child must obtain their own loan to pay off the existing reverse mortgage balance. Children who cannot afford housing will be placed in. This A difficult situation in the field,” added Walton.
“It may be better in the long run to buy a different property. Take your equity and turn it into a property that’s more enjoyable and fits your lifestyle,” Walton says, “or, if the borrower can qualify for income.” And with a shorter term, a HELOC is cheaper to originate and you can get a higher loan amount than a reverse mortgage can.”
Mike Gregor, a Realtor at Cohen Agency CM, LLC offers advice along the same lines, saying “A home equity loan or line of credit can be a good choice for homeowners who want to access their home equity without affecting their ability to leave an inheritance. to heirs. These options typically have lower upfront costs and interest rates than reverse mortgages, and the loan balance is paid off in monthly payments rather than accumulating over time.”
How does a reverse mortgage work?
If you qualify, a reverse mortgage allows you to borrow against the equity in your home and requires no repayment until you move, move or sell your home.
Home equity conversion mortgages (HECMs), which account for most reverse mortgages, require borrowers to be at least 62 years old to qualify. You must also live in the home as your primary residence, pay for other expenses related to the property, and be approved by the lender; Among other requirements. HECMs are insured by the US federal government and are available only through FHA-approved lenders.
If your reverse mortgage application is approved, the lender will give you a loan limit based on the value of your home. The amount of equity you have, your age and the interest rate for which you are eligible From there, you can opt for credit, monthly payments, or a lump sum payment.
Interest and Fees
HECM lines of credit and monthly payments come with adjustable interest rates that apply only to the funds you withdraw. The lump sum payment option comes with a fixed interest rate that is charged on the entire amount from the time the loan is closed. You also have to pay an initial mortgage insurance premium (MIP), ongoing MIP, an origination fee, closing costs and a counseling fee.
Explore your reverse mortgage options to learn more
Is a reverse mortgage right for you?
Reverse mortgages can be helpful in a variety of situations, but they come with a few potential dealbreakers. whether or not You will get one Will depend on your unique financial situation and goals. “It is imperative for homeowners to carefully consider their options and seek guidance from a financial advisor or HUD-approved counselor before making a decision,” says Gregor.
Want to take the next step? Learn more about how to get a reverse mortgage.
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