When thinking about a mortgage, most people just think about the traditional uses for a mortgage, speaking with a mortgage broker to secure it and paying off that mortgage with interest added to it. However, there are so many options to explore when it comes to your mortgage. As a mortgage broker, it’s my job to find the right mortgage solution for your personal financial situation while helping you get approved at the lowest rate possible.
Whether you’ve just purchased your forever home, or you’ve bought and sold a few homes in your lifetime, I wonder if you’ve heard of or thought about a reverse mortgage?
What is a reverse mortgage?
A reverse mortgage enables you to access your home equity funds without requiring you to sell your property IF you are 55 years of age or older. You read that right, you can use your mortgage as a tool to provide yourself with a loan. A loan that could help alleviate any income deficiencies you may be facing, make renovations you’ve been putting off, or perhaps you might use the equity to consolidate debt that has accumulated.
How does the reverse mortgage work?
With a reverse mortgage, you have the option to receive a substantial sum of money upfront or in regular cash payments on a schedule of your choosing. This loan can be for up to 55% of your home’s current market value. While you are responsible for paying the monthly interest on the loan, you are not required to make any payments until you sell the property or pass away. As long as you adhere to the mortgage’s terms, your home will not be at risk, and you will never owe more than its value.
For example, suppose you purchased your home years ago for $100,000, and its current market value has risen to $750,000. In this case, you may borrow up to 55% of the current value of your property, provided that it is valued at a minimum of $200,000.
A reverse mortgage differs from a line of credit in that it does not necessitate income verification. To qualify for a reverse mortgage, you must be a homeowner aged 55 or above and have equity in a property valued at $200,000 or higher.
This type of mortgage can be a beneficial tool to fund your retirement by utilizing the equity in your home you’ve built up over the years.
What are the pros of reverse mortgages?
There are several potential benefits to using a reverse mortgage, including:
Supplemental income: A reverse mortgage can provide additional funds to help supplement your retirement income, enabling you to cover expenses that you may not be able to afford otherwise. You can also use the cash you take out of your home equity to pay off debt, cover everyday expenses, make renovations, or support your family.
Bad credit? No problem! You can often use this type of mortgage even if you have bad credit. You also don’t need to prove your monthly income to qualify.
No monthly mortgage payments: Unlike traditional mortgages, a reverse mortgage typically does not require you to make monthly payments, as you can choose to defer repayment until you sell the property or pass away. You can exit your reverse mortgage at your convenience by paying your mortgage amount in addition to the interest incurred.
Stay in your home: With a reverse mortgage, you can access the equity in your home without having to sell it, allowing you to continue living in your home. And, the lender cannot transfer ownership of your property.
Tax-free income: The funds you receive from a reverse mortgage are usually tax-free, which can be beneficial if you’re on a fixed income.
Flexible payment options: Depending on the lender, you may have the option to receive a lump sum, regular payments, or a line of credit, giving you more flexibility in how you access the funds.
It’s important to note that the benefits of a reverse mortgage may vary depending on your individual circumstances, so it’s essential to reach out to me, Darren Robinson, to determine if this is the right option for you.
What are the cons of using a reverse mortgage?
While a reverse mortgage can provide certain benefits, there are also potential drawbacks and risks to consider, including:
High fees and interest rates: Reverse mortgages can come with high fees and interest rates, which can significantly reduce the amount of equity you have in your home. There are also other fees to consider like mortgage insurance, start-up fees, appraisal fees, and interest.
Decrease in home equity: As you receive payments from a reverse mortgage, your home equity may decrease over time, which could impact your ability to leave an inheritance to your heirs.
Potential for foreclosure: If you fail to meet the terms of the loan, such as keeping up with property taxes and homeowners insurance, the lender may foreclose on your home.
Your current mortgage must be paid off before a reverse mortgage can be registered.
Complexity and risks: Reverse mortgages can be complex and difficult to understand, and there are risks involved, such as changes in interest rates or home values, that could impact the amount of money you receive.
Selling your home: If you decide to move from the property, you must repay the loan within a specified time period. To be released from the mortgage agreement, you must sell your home, repay the loan or pass away. In the event you pass away, your estate becomes responsible for paying back the lender.
Is a reverse mortgage right for you?
While selling your home or downsizing are also options in retirement, you should consult with an experienced mortgage broker ahead of making any firm decisions. To explore your options, call me, Darren Robinson, and I’ll advise you on what options are available to you, which best suit your situation, and as an experienced financial advisor I can help you make a plan for your retirement at the same time. To get started give me a call at 705-315-0516 or book a consultation online by clicking here.