In the past few years, reverse mortgages have become quite popular and are more widely available than they had been in the past, but you still may be wondering, how does a reverse mortgage work? And what are the reverse mortgages pros and cons that should be covered? A reverse mortgage is only available to people who are age 62 or older, therefore a reverse mortgage provider only targets seniors in their ad campaigns for these types of mortgages, especially seniors who have built up quite a bit of equity in their homes already.
So what is a reverse mortgage?
The way that it works is your reverse mortgage lender will begin to make payments to you, depending on how much equity you have in your home. This may seem much better than a traditional mortgage where you have to pay the bank monthly, but we’ll get to the reverse mortgage pros and cons in a minute. Any taxes or interest are included in the amount to be repaid, which will begin to reduce the equity in your home. The way that the lender will get their money is after the owner passes away, or when the house is sold.
A big majority of the reverse mortgage loans don’t even need to be paid back for a long period of time, and with some of them, they don’t need to be repaid at all. How they determine how much you will be paid each both is a calculation of how much your house is worth, how much equity you have, how old you are, and lastly the current reverse mortgage rates. It is important to know reverse mortgage disadvantages through and through.
You can get paid from the reverse mortgage lender in a variety of ways:
- A large lump sum.
- Fixed monthly payments for as long as you live (These may be lower than other options.)
- As a credit line you can tap into.
- Fixed monthly payments for a certain length of time.
- Or as a combination of monthly payments and an open line of credit.
There are some cons to getting a reverse mortgage for seniors:
- There can be some hefty fees involved when getting a reverse mortgage, so it is definitely best to shop around and use a reverse mortgage calculator you can find online to help you to determine the amount of fees you will be paying for each lender.
- You may be unable to get payments from the government such as your social security or Medicaid, because of your income from the reverse mortgage.
- When you pass away, if repayments haven’t been made, then the house will go to the lender. If you were planning on putting it in your will, you may want to reconsider.
A reverse mortgage can be a great source of income for people who it suits their specific situations. Hopefully this reverse mortgage information has given you the tools you need to make an informed decision. Heck, you could even work in the industry and get a reverse mortgage job. Find out more about reverse mortgage pros and cons.