In order to qualify for a reverse mortgage, you have to be able to afford your property taxes, homeowners insurance, HOA fees and other costs associated with owning your home. So what is the downside of a reverse mortgage? Though it might seem like there are many benefits, there are also some serious risks to consider. If this occurs, your heirs don’t have to worry about paying the balance. This can happen if home prices fall, for example. In some cases, the value of your home could end up being less than the total amount owed on the reverse mortgage. You’re Protected If the Balance Exceeds Your Home’s Value That means the funds aren’t taxed, unlike other retirement income such as distributions from a 401(k) or IRA. You Won’t Have Tax LiabilityĪccording to the IRS, money you get from a reverse mortgage is considered to be a loan advance rather than income. This frees up money to put toward other expenses. In fact, you can use the proceeds of a reverse mortgage to pay off an existing home loan. Your home doesn’t have to be paid off in order to take out a reverse mortgage. This means you don’t have to worry about potentially downsizing or getting priced out of your neighborhood if you had to move. Instead of having to sell your home in order to liquify your asset, you can keep the property and still get cash out of it. A reverse mortgage allows you to turn an otherwise illiquid asset into cash that you can use to cover expenses in retirement. Reverse mortgages are ideal for retirees who don’t have a lot of cash savings or investments but do have a lot of wealth built up in their homes. Here are a few benefits to opting for a reverse mortgage. If you’re struggling to meet your financial obligations, a reverse mortgage may help you stay afloat. Heirs also can choose to pay off the reverse mortgage or refinance if they want to keep the property. If not, or if the loan is actually worth more than the house, the heirs aren’t required to pay the difference. If there’s any equity left over, it goes to the estate. When that time comes, proceeds from the home’s sale are used to pay off the debt. You get to keep the title to your home the whole time, and the balance isn’t due until you move out or die. That means the amount you owe grows over time, while your home equity decreases. The interest and fees associated with the loan get rolled into the balance each month. The lender actually makes payments to you: You can choose to receive a lump sum, monthly payments, a line of credit or some combination of those options. At the end of the term, the loan is paid down to $0.Ī reverse mortgage works in, well, reverse. Normally, when you take out a mortgage loan, the bank gives you a lump sum that you pay back with interest over time.
You’re probably wondering how it’s possible to get a mortgage with no payments. If you are approved for a reverse mortgage, you have to sit through an information session given by an approved HECM counselor. You must stay current on the property taxes, insurance and any homeowners association (HOA) fees.You will be subject to a credit check and other eligibility requirements.The property has to be your principal residence and you can’t be delinquent on any federal debt.You need to own the home outright or have paid down a considerable amount of the mortgage.In addition to being at least 62 years old, there are a few other requirements to get an HECM: If a borrower fails to repay their loan, those reserves are drawn against to pay back the lender. These loans are backed by the Federal Housing Administration (FHA) borrowers pay an insurance premium in order to participate, which is used to fund FHA reserves. The most common type of reverse mortgage is known as a home equity conversion mortgage (HECM). However, unlike a regular mortgage, you aren’t required to make monthly loan payments you’ll repay the loan when you or your heirs sell the house. If you’re a property owner who is at least 62 years old, you can borrow against your equity to get cash or a line of credit from a lender.
0 kommentar(er)
