Posted on: 16 April 2021
If you own a home, one financial tool that you can use to fund your retirement is a reverse mortgage. This mortgage product is only for seniors, and requires that you have significant equity in your home that you can access. Here are some things to know about reverse mortgages so you can make an informed decision.
You Can Only Mortgage Your Primary Residence
If you have multiple homes, know that a reverse mortgage is not allowed on a summer home that you do not visit frequently. It must be on the primary residence that you use for the majority of the year. You may lose access to the funds from the reverse mortgage if you end up going into a care facility for an extended period of time and your home is no longer your primary residence.
You Can Take The Money Out As Needed
One thing to know about reverse mortgages is that you don't have to take all of the money out as a lump sum. While that is certainly an option, there are several ways that it can work. Many seniors prefer to take the payment out in the form of fixed payments every single month. This can encourage spending in retirement since you spend what you receive. Others prefer to have a line of credit, which allows them to borrow from the equity in their home as needed.
You Can Pay The Mortgage Off After You Pass Away
A huge benefit of getting a reverse mortgage is that you will own your home and can live in it until you pass away. Only then will the mortgage be paid off by selling the home. This helps solve a big problem of figuring out how to fund your retirement, as the house doesn't need to be sold to give you access to the home's equity. However, doing so means you can't pass on your home or the proceeds from the sale to your heirs.
You Must Still Maintain The Home
You still have the responsibility of maintaining your property while living in the home. It's important to understand that the property now belongs to the mortgage lender, and they expect you to pay back the loan with the sale proceeds. You may be denied the remaining payments from your reverse mortgage if the bank discovers that the home is being neglected and in need of repair. The appraisal of the home will give the lender a good idea of what shape the home is in when you get the reverse mortgage. In addition, you must continue to pay property taxes, or the lender will foreclose on your home.
Contact a company that offers reverse mortgages for more information.Share