Are Reverse Mortgages Safe?
If you’re thinking about boosting the retirement income that you have, then you can consider getting a reverse mortgage. You may be wondering what it is and are reverse mortgages safe. In this article, we’ll share with you the basics of reverse mortgages including its pros and cons. Let’s start by going over what reverse mortgages are.
What are Reverse Mortgages?
Anyone who is approaching his or her retirement would think about ways to have more income. If you haven’t saved enough for your retirement, then this is something to definitely think about. While there are several ways to do this like getting a job where you can work part-time or having your own side business, a reverse mortgage can also be one option.
If this is the first time that you’ve encountered this term, don’t worry. This article is for you. A reverse mortgage is what the term suggests. It’s the opposite of what a regular mortgage is. But of course, it’s not as simple as that. It is a complex financial product like others available. But that doesn’t mean it’s impossible to understand. We’ll discuss what it is and if it is a safe option for seniors.
When you get a reverse mortgage, you can think of it as selling your property, your home in particular, to a lender wherein you will then be given money. This exchange may be through a line of credit, income stream, or lump sum. But the good thing in this arrangement is that you can still live in your home. You would have to do a lot of thinking on how you want the payments to be arranged and how you’ll use it so that you can make the most out of your reverse mortgage.
Technically, a reverse mortgage is a loan. You can borrow an amount that is not more than what your property is worth. Overtime, this amount you borrowed will increase because of the interest. Borrowers don’t have to repay the loan until they pass away or sell their homes or even when they move to a nursing home later. When the house is sold, then the debt can be covered.
Are Reverse Mortgages Safe?
In general, reverse mortgages are safe and it is an effective measure in boosting your income during retirement. However, like any financial product, it still has some downsides. We’ll discuss those here. Do remember that these downsides are example situations that you have to consider when making the decision about getting a reverse mortgage. This will help you prepare for any worst-case scenario that may happen.
One of the situations that you may encounter when getting a reverse mortgage is being offered terms that are not very ideal for you. That’s why you have to be careful in choosing a lender for this. It would also be advantageous if you get a lawyer or a financial adviser so that they can review any contract you have with the lender and tell you their opinion of it. This way, you know what you are agreeing to when you sign the contract.
It may be possible that you won’t be receiving the amount you have in mind in a reverse mortgage. The amount that you will get depends on a number of factors such as your age, the property’s value, its equity, and any interest rates.
You also have to know that reverse mortgages have closing costs for your loan in the same way with regular mortgages. But closing costs and interest rates are usually higher with this kind of mortgage. With a reverse mortgage, you will be the one responsible for expenses related to your home such as maintenance, repairs, insurance, and taxes.
Once you don’t live in your home anymore, the property would have to be sold so that the loan can be paid. This means that you cannot leave the home to your heirs. But if they do pay off the loan themselves then the property can be theirs.
What are the Benefits of Reverse Mortgage?
One of the big benefits of getting a reverse mortgage is that you can have a good income stream during your retirement. If you haven’t prepared financially for your retirement, then a reverse mortgage can certainly help.
Another upside to a reverse mortgage is that the income that you get from it is tax-free. Other financial products for retirement-funding often require that you sell your home or downsize for that matter. You may even be asked to move to another place that is less expensive. But with reverse mortgages, the borrower can stay at his or her home and receive payments from the lender.
When you’ll apply for a reverse mortgage, you will be required to meet with a counselor to discuss what a reverse mortgage is about. You will understand terms and responsibilities much better in this session. You can also ask questions about things you don’t understand. This is a good opportunity to know if a reverse mortgage is the financial product that you need.
To answer the question “are reverse mortgages safe?” yes, generally, it is a safe financial product. What you have to make sure of is to find an established lender so that you will have a fair contract with them. Ask the advice of a lawyer of financial adviser as well before signing anything. Also, take full advantage of the counseling session so that you can fully understand everything that you need to know about reverse mortgages.