Financial planning is something that we spend our entire lives learning, only to have the entire playing field turned upside down upon retirement. Whether you are looking into a reverse mortgage as a last resort or just a way to increase your standard of living, this guide will act as a quick introduction to this unique type of mortgage so that you can better understand your lawyer or financial advisor when the time comes to ask about getting one.
The Plain English Definition of Reverse Mortgage
A reverse mortgage allows homeowners to borrow against the fair market value of their property after deducting any liens. In other words, homeowners are able to convert home equity into usable cash with no restrictions on what sort of investments you make with said cash. You do not make any monthly payments toward the loan balance, and you will retain the title to your home.
This, of course, is a very general definition the details may be different depending on where you live. A Los Angeles mortgage broker would be familiar with applicable local regulations, just as a Chicago mortgage broker would be the master of all things Windy City. The general ideal will remain the same but the small things that change really do matter.
You’ll find different types of reverse mortgages with varying degrees of flexibility. Term policies will pay out over a specified period, tenure mortgages last as long as you live in your home, and a line of credit gives you the power to make withdrawals when you need them.
You must repay the loan when the owner of the home dies, sells the home, or moves out.
The Benefits and Pitfalls
A reverse mortgage can help pay the bills, pay for property upgrades and maintenance, or just everyday living expenses. There are no restrictions, making these loans a very flexible choice for those who qualify. Of course, like any other loan, they can be dangerous make sure to use a trusted attorney at all times, to help you understand the complicated contracts and what they may mean for your future home ownership status or the financial health of your heirs.
You will still have to pay property taxes and home insurance payments. If you fail to pay, you face foreclosure. The upfront costs of receiving a reverse mortgage are also somewhat expensive.
A smart mortgage broker and a trusted real estate lawyer can help you make an informed decision. This guide is only here to give you a few of the basic definitions and terms to look out for while you discuss your options with the professionals a reverse mortgage is a serious financial consideration, a consideration that your lenders won’t let you forget.