For many seniors, retirement is a beautiful stage of life. It is a time when your everyday professional obligations are over and you have more time than you’ve ever had before to enjoy life’s pleasures. With this extra time, you have been able to babysit the grandchildren, and have enjoyed taking them fishing or baking cookies with them. Or perhaps you have finally been able to take that sewing class or visit that antique car show that you were always curious about. Maybe you have more time to meet some old friends for chess games in the park or Sunday morning brunches. However, with this newfound freedom from not working comes a tradeoff: you may need to supplement your regular fixed income. Fortunately for you, having a paid-off, or nearly paid off, home means you have an asset in the form of home equity that can help increase your cash flow. All you need is the right tool to access it.
The Reverse Mortgage Loan
As many retirees have already discovered, a reverse mortgage is one such tool. Defined as a mortgage loan for senior homeowners age 62 and older, this option allows its borrowers to access a portion of their home equity. Although other options of accessing equity are available, such as selling the home or assuming a second mortgage, only a reverse mortgage loan allows borrowers to remain in the home without a monthly mortgage payment. This is due to the fact that with a reverse mortgage loan, payment is deferred until a borrower permanently leaves the home. Until then, no repayment is required unless the borrower defaults on loan terms. For certain borrowers, the chance to age in their home combined with the ability to access equity without a required monthly mortgage payment is exactly what they are looking for. But like any financial product, it is always intelligent to learn about both the disadvantages as well as the advantages.
The Pros & Cons
The pros and cons of a reverse mortgage can help you determine if this loan can benefit you.
The Pros of a Reverse Mortgage
- The lender does not take ownership of your home as long as all loan terms are met.
- Funds can be used as you wish, such as to cover daily expenses or pay off bills and credit card debt.
- The Home Equity Conversion Mortgage (HECM) reverse mortgage is insured by the Federal Housing Administration (FHA) and has numerous consumer safeguards.
- The loan is non-recourse, meaning that the home is the only asset that can be taken to repay the loan.
- Insurance also protects the consumer from owing more than the value of the home when sold.
The Cons of a Reverse Mortgage
- You may not live away from home for more than 12 consecutive months. Your home must be your primary residence.
- Because the loan’s repayment is deferred, a lien is placed on the home until repayment.
- If your heirs wish to inherit the home instead of selling it, they must find another way of repayment, such as refinancing into a traditional mortgage.
- The loan becomes due and payable if you do not fulfill the obligation to pay your property taxes, homeowners insurance and basic home repairs and maintenance.
- Some borrowers who get a HECM reverse mortgage may be required to set-aside some loan funds to fulfill financial obligations during the loan.
Is This Loan Right for You?
These pros and cons can help you make a determination about whether or not this loan is right for you.
A reverse mortgage may not be right for you if:
- You foresee leaving your home for more than 12 consecutive months, such as in a nursing home, a family member’s home, or in a second home.
- You want to leave a free and clear home to your children as an inheritance.
- You would prefer a loan without the protection of government insurance and the premium that comes with it.
- You are unable to continue to pay the property taxes, insurance and regular maintenance of the home in order to meet the financial obligations of the loan.
However, a reverse mortgage may be right for you if:
- You have no plans to move away from your home or sell it.
- You prefer to age in place.
- You want to access a portion of your home equity.
- You don’t want to pay a monthly mortgage payment.
- You have no heirs, your heirs are not interested in your home, or they don’t mind refinancing the reverse mortgage if they inherit the home.
- You appreciate the protection that federal insurance this loan gives.
- You like how the loan is non-recourse, which means no other asset except the home can be taken by the lender to repay the loan.
Armed with the knowledge of both the pros and cons of reverse mortgages, you can objectively decide if you would find this loan useful for your needs. Calling a reputable lender and speaking with a reverse mortgage professional can also be a significant source of information for you, as you will get the chance to determine this loan’s benefits based on your personal situation. For many senior homeowners, this loan has been the perfect fit to accomplish what they wanted in retirement. With the right research, you are on your way to finding out if a reverse mortgage can work for you as well.
About American Advisors Group
American Advisors Group is the nation’s leader in reverse mortgage lending, and is dedicated to helping American seniors convert a portion of their home equity, a largely untapped asset, to help fund their retirement needs. To check how much you may receive from a reverse mortgage, visit https://www.aag.com/reverse-mortgage-calculator/ for the American Advisors Group Reverse Mortgage Calculator.
American Advisors Group holds an A+ rating by the Better Business Bureau, has a 97% customer satisfaction rating and is a proud member of the National Reverse Mortgage Lenders Association (NRMLA). To learn more about American Advisors Group and reverse mortgages, please visit the company’s website at www.aag.com.
About The Author
Alberta Lim is the Digital Content Writer for American Advisors Group, the #1 Reverse Mortgage company in the nation. Writing content for the company’s website, news and updates, and newsletters, plus being surrounded by the top Reverse Mortgage Professionals in the industry, means that she is no stranger to Senior Retirement Planning and Living.
“Do I Qualify for a Reverse Mortgage? The Questions You Should Ask and the Requirements You Need to Know.” Homefinder.com. ND. NP. Web. 28 July 2015. http://www.homefinder.com/research/reverse-mortgage-requirements
Lim, Alberta. “Debunking Myths about Reverse Mortgages.” Equities.com. 18 June 2015. NP. Web. 28 July 2015. http://www.equities.com/editors-desk/personal-finance/real-estate/debunking-myths-about-reverse-mortgages
Lim, Alberta. “What Seniors Should Know About Reverse Mortgages.” GriswoldHomeCare.com. 23 July 2015. Griswold Home Care. Web. 28 July 2015. http://www.griswoldhomecare.com/blog/what-seniors-should-know-about-reverse-mortgages/
Understanding the Pros and Cons of a Reverse Mortgage.” AAG.com. American Advisors Group. ND. Web. 28 June 2015. https://www.aag.com/news/the-pros-and-cons-reverse-mortgages