Throughout the years, you have come to realize how much of an investment your home has become. Little by little, you paid for certain improvements to advance the growth of your home's value. Perhaps you removed your ceiling's old light fixtures and replaced them with the modern radiance of recessed lighting. You may have torn off your rooms' outdated wallpaper, and brightened your walls with a splash of color from a fresh coat of paint. Maybe you pulled out worn carpet and installed the classic look of a wood floor. With every improvement, your home's beauty, as well as its equity, increased. Now, with a well-valued home, you have part of what you need to fund a financially stable retirement. The only missing piece is the right financial tool to access your valuable equity.
Is a Reverse Mortgage Right For Me?
Unlike other alternatives, such as assuming a second mortgage or selling the home, the reverse mortgage option allows senior homeowners ages 62 and older to access their home equity without a stifling monthly mortgage payment. However, like any financial loan product, you must determine if it is the right fit for you. Fortunately, there are 5 questions you can ask yourself that may give you the answers you need.
1. Where would I like to live in retirement?
This question is important in determining if a reverse mortgage is a good fit for you. The loan was designed for the senior homeowners who desire to age in place, in the comfort of their home. Consequently, the loan requires that a borrower should live in their home as their primary residence and should not live elsewhere for more than 12 consecutive months.
For borrowers who plan to live in their homes throughout retirement, this loan is a great option. However, for borrowers who foresee moving into a nursing home, traveling away from their homes for extended periods of time, moving into a family member's home, or living in a second home for more than a year, they may risk defaulting on the loan terms. In this case, the loan may become due and payable, and thus may not be as an efficient option. Therefore you must ask yourself, "Do I plan to live out retirement in my home?"
2. Why do I need a reverse mortgage?
Or, what would you use a reverse mortgage for? Some borrowers have used their reverse mortgage funds to pay off an existing mortgage, credit card debts or medical bills. Other borrowers have used it as a financial back-up, opting for the line of credit option, to only be used when needed and avoid unnecessary interest charges. There are many viable and exciting uses for reverse mortgage funds, from supplementing a fixed income to making home repairs. Creating a smart plan for how you will use this money will help you make the most of it.
3. Do I have my home paid off or nearly-paid off with a low mortgage balance?
In addition to your age and current interest rates, the amount of money you have access to through a reverse mortgage loan is highly dependent upon your existing mortgage balance. The higher your mortgage balance, the less money you may have available to access through your reverse mortgage. A home that is paid off or close to it will garner the most amount of money possible from equity. If you have little equity, or a high mortgage balance remaining, you may not qualify for the loan at all, or the funds available may be minimal. If this is the case, this loan may be an inefficient route for you to take.
Therefore, in order to determine how helpful a reverse mortgage would be for you, it is essential to ask yourself if you have enough equity to achieve your goals with a reverse mortgage. One of the best ways to answer this question is to consult with a reverse mortgage expert. They can give you an estimate of how much money you may receive, and if that amount will benefit your financial standing.
4. What are my heirs' expectations regarding my home?
Repayment of a reverse mortgage loan is quite different when compared with traditional mortgage loans. Traditionally, mortgages are repaid over a number of years with a monthly payment. With a reverse mortgage, payment is deferred until you permanently move out of the home, pass away, or default on loan terms. Instead of paying a monthly mortgage payment, the loan is repaid at loan maturity with the sale of the home.
At this time, the proceeds will first go towards repaying your reverse mortgage loan, after which any remaining equity will be disbursed to your heirs. If they would like to keep your home instead of selling it, then they may repay the reverse mortgage in another manner, such as refinancing the loan into a traditional mortgage.
Every family is different. Some feel that leaving a paid-off home to their children as inheritance is important, while others do not. Therefore, an important question to explore is how you, or your heirs, feel about this kind of arrangement.
5. Do I understand all of the loan terms?
When a borrower signs on to a reverse mortgage, some financial obligations still continue. As the owner of the property and the holder of your house's title, you are still responsible for paying property taxes, homeowner's insurance, any homeowner's association fees, and maintaining basic home repairs. Defaulting on any of these obligations may cause the home to go into foreclosure.
Therefore, before committing to a reverse mortgage loan, you should ask yourself if you are confident that you can fulfill the obligations of this loan. Ensure that you are absolutely clear on all aspects of these loan terms by having a reverse mortgage expert outline all of them for you in detail prior to signing.
Once you have asked yourself these 5 questions, you will be on your way to a better understanding of whether or not getting a reverse mortgage will be a good fit for your needs. A reverse mortgage professional is also an invaluable resource in getting more information about this loan, educating yourself on all its details, and getting a concrete estimate tailored for you. With the help of a knowledgeable professional, along with the understanding you have gained from researching this loan option, you may be well on your way to funding your retirement in just the way you always imagined.
Lim, Alberta. "What Seniors Should Know About Reverse Mortgages." GriswoldHomeCare.com. 23 July 2015. Griswold Home Care. Web. 10 August 2015. http://www.griswoldhomecare.com/blog/what-seniors-should-know-about-reverse-mortgages/
"The History of the Reverse Mortgage." www.AAG.com. NP. ND. Web. 10 August 2015. https://www.aag.com/news/history-reverse-mortgage
"The Truth About Reverse Mortgages." Thousadnaire.com. ND. NP. Web. 10 August 2015. http://www.thousandaire.com/the-truth-about-reverse-mortgages/
"Understanding 4 Key Reverse Mortgage Loan Features." SeniorLiving.com. ND. NP. Web. 10 August 2015. https://www.seniorliving.com/article/understanding-4-key-reverse-mortgage-loan-features
"What is a Reverse Mortgage?" SeniorAdvisor.com. ND. NP. Web. 10 August. https://www.senioradvisor.com/blog/2015/05/what-is-a-reverse-mortgage/
About American Advisors Group
American Advisors Group, the nation’s leader in reverse mortgage lending, is dedicated to helping American seniors convert a portion of their home equity, a largely untapped asset, to help fund their retirement needs. To learn if a reverse mortgage can work for you, visit https://www.aag.com/reverse-mortgage-calculator/ to use the AAG reverse mortgage calculator.
American Advisors Group is proud of its A+ rating by the Better Business Bureau, and 97% customer satisfaction rating, and is a proud member of the National Reverse Mortgage Lenders Association (NRMLA). To learn more about reverse mortgages and American Advisors Group, please visit www.aag.com.
About The Author
As a writer for American Advisors Group, the leading U.S. reverse mortgage lender, Alberta Lim is committed to sharing news and information seniors can use to improve their quality of life.