You may have seen those TV commercials with the aging celebrity talking to the elder audience members about all the virtues of using a reverse mortgage.
As with most financial endeavors, it requires some time and research to gain the basic knowledge you need before you buy any product.
Here are a few features and warnings to get you started.
1. A reverse mortgage is a loan that is based on the value of your home. It is not paid back until the homeowner is no longer living in the home. It is one way to get money from your largest asset, your house, with a line of credit or monthly payments to you. For many seniors, this could help cover medical expenses or supplement their retirement income.
2. To be eligible for the loan:
- The borrower must be over age 62
- The property must be owned and occupied as primary residence
- The property must meet standards that usually requires an appraisal
- The owner must maintain the home in good repair, pay property taxes and insurance
3. The amount of the loan available depends on:
- The age of the borrower
- Current interest rates
- The appraised value of the home
Some additional drawbacks to consider:
4. Repayment of the loan must be met when the owner dies or vacates the property. This may force the decision to sell the home in order to pay off the reverse mortgage. Or if the heirs plan to keep the property, they will need to pay off the loan or refinance into another loan.
5. Interest charges are applied to the mortgage loan and will continue even if the monthly payments are discontinued.
6. There are fees for applying and setting up the loan.
7. This may impact the inheritance expectations for your family, so the loan should be part of the overall discussion with your heirs.
Economic pressures and career changes may lead the aging boomer population to jump into a reverse mortgage as a quick financial fix. Consider all options and consequences before you act and seek the guidance of a qualified financial adviser.
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