With the current state of the economy, it is becoming more and more difficult for retired Americans to count on their retirement funds and savings to get by. To solve those problems, a lot of seniors are turning towards a reverse mortgage. Reverse Mortgages have helped a lot of seniors across America, but it might not be for everyone. But the question is: what exactly is a reverse mortgage?
What is a Reverse Mortgage?
A reverse mortgage or Home Equity Conversion Mortgage is a home loan that allows borrowers to convert their home equities into cash for living expenses or other purposes.
Single-purpose reverse mortgages are provided to low or middle-income borrowers by government agencies and non-profit organizations. They can be used for home renovation and property taxes. Federally insured reverse mortgages are costlier than traditional home loans and can be used for all purposes. Propriety reverse mortgages are provided by private companies.
You are eligible to apply for a reverse mortgage when you have a low mortgage balance, and you are either 62 or past that age.
There are both pros and cons associated with reverse mortgages. Here are a few of them. You can go through them and decide if this option is right for you or not.
Pros of Reverse Mortgages
Following are the advantages of reverse mortgages:
- No monthly payments – When you take a loan out, you need to pay a portion of cash every month for its repayment. With a reverse mortgage, you don’t have to do that.
- Non-taxable loan – one of the main benefits of this loan is that is not tax deductible. Any income you receive, you will have to pay tax on it.
- You don’t have to move out – as long as you meet the terms of your loan, you can stay in your house.
Cons of Reverse Mortgages
Stated below are the disadvantages of reverse mortgages:
- Deadline – though you are allowed to live in the house for as long as you like, there is a deadline on the repayment of that loan. Borrowed loans need to be repaid on the following events: the death of the borrower; or if the borrower stays away from his/her home for over a year.
- The borrower has to pay the loan even if he/she is not spending on property taxes, maintenance of the property, and homeowner insurance.
- If the rate of interest is increased, the amount of load will increase as well. As a result, you will be charged higher fees.
- You could fall into the hands of fraudsters. These unethical people take advantage of seniors and drain their money.
Now that you know what the pros and cons are, you can make an informed decision. Talk to your financial advisor before making any decisions.
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