Reverse mortgages, also known as Home Equity Conversion Mortgages (HECM) are available to homeowners of a least 62 years old. It allows homeowners to access their home’s equity while still living in there. This means that you can borrow money against the equity of your home which should not be repaid unless you are moving out, selling the home or after your death. Payment is received as a lump sum, a line of credit or as a monthly payment. The amount you are allowed to borrow ultimately depends on your age, length of the loan term, interest rates and total equity. Having that, is reverse mortgage a good way of investing? Well, here is an important piece of information you need to know about senior reverse mortgages. Clearly, a reverse mortgage can be a good fit if you are avoiding passing your home to heirs. It provides a sweet deal for retirees and is worth some consideration. Reverse mortgages provide a good solution to generate funds needed for living expenses. Its benefits go beyond just that!
Standby line of credit
With a reverse mortgage, you can set up a credit line which grows over time. The value of a line credit depends on the size of your mortgage, interest rates and you age. It is helpful in ways such as protecting huge portfolio returns in early retirement.
Guaranteed monthly income
Homeowners are guaranteed a monthly income for life. The longer you live, the better it becomes! The income can exceed your home value after a period, and you continue enjoying payments. It enables you to pay off any high-interest loans or invest. The income is tax-free!
Emergency funds for unexpected needs
In cases of unexpected health issues or accidents, a reverse mortgage could make a difference. It can cover a portion or all of your long-term insurance premiums. However, even with the potential benefits, a reverse mortgage has its drawbacks.
Fees include service fees, origination fees, a mortgage insurance premium and closing costs. These prices can be very high. You are also responsible for expenses such as property taxes, insurance, and maintenance since you will own the home. Failure to do this would trigger a serious financial crisis.
Reverse mortgage Interest rates associated with reverse mortgages are relatively higher than rates of a normal mortgage. Besides that, the interest accumulates every time you receive payments.
A reverse mortgage could make you lose benefits received from the government or any other entity. A senior reverse mortgage is a Debt. It is critical always to remember reverse mortgage is a debt. If you decided to move out or sell your home, you are required to pay off the loan.
No full access to your equity
The amount you can borrow from a reverse mortgage is capped. It is typically less than 60% of the home equity. The calculations are based on appraised value, interest rates and whether there are any loans on your home. Before taking up reverse mortgage as an investment, it is essential to consider its benefits and drawbacks.