A senior reverse mortgage can be defined as a special type of a regular home loan that allows you convert a portion of your home equity into cash. It allows older people to access part of their home equity to pay for needs like medical fees, home repairs, travel expenses, and other living costs.
A regular home loan allows you to take money from a lender and then make monthly installments to pay the principal amount plus interest. This arrangement allows you to decrease your debt over time as you increase your equity. Once the loan is fully paid, you obtain full equity and ownership of the home. A senior reverse mortgage allows the lender to pay you a certain percent of your home value in a lump sum or on a monthly basis. This arrangement allows for your debt to increase over time as your equity decreases. The reverse mortgage lender purchases more equity in your home every time they pay you and allows you to continue enjoying the use of the property. Once your home falls into disrepair, or you pass away, the loan amount becomes due. The reverse mortgage lender, therefore, sells the home to recover their money and passes any remaining equity to your heirs.
Why choose a reverse mortgage over a regular home loan
There are key differences between a regular home loan and a reverse mortgage loan. Both of them have their own advantages and disadvantages. A regular home loan, for instance, puts more money in the pocket but requires you to make monthly payments. A senior reverse mortgage is more costly but doesn’t require immediate repayment. The reverse mortgage option may, therefore, work well for retirees who might find it hard to make regular monthly payments. If you have a long-term need that requires a steady source of income, then the reverse mortgage option will work well. The regular home loans are usually meant to meet short-term cash challenges that an individual may be facing. As much as they are like any other type of home loan, reverse mortgages give you the freedom to borrow now and pay later. The other factor that may influence you to choose the reverse mortgage option is the limited and deferred repayment. Senior citizens may not have a fixed source of income and shall find it attractive to repay the borrowed amount at a later date. The borrower’s liability in a reverse mortgage arrangement doesn’t exceed the property’s value. By choosing a reverse mortgage’s monthly installment payments, you are guaranteed of getting money at all times.
Both the reverse mortgage and regular home loan options give you the opportunity to convert into cash your home equity. The two options differ when it comes to disbursement, equity & age requirements, income & credit requirements, and tax advantages. The reverse mortgage is often considered the better choice for people looking for a long-term source of income. Both of them have their own risks and benefits and it is, therefore, important to do a thorough research before picking on any of them. Choosing a reverse mortgage option is a major financial decision that requires the input of not only your family but also an independent financial advisor.