If you have been looking into mortgages, then you might have come across something known as a reverse mortgage. However, you might not know exactly how it works or why you would want to get a reverse mortgage. To help you figure out whether a reverse mortgage is a good fit for you, here are some questions that you should consider:
What is a reverse mortgage?
The basic idea of a reverse mortgage is that you can exchange your equity in your home for a large sum of money. In essence, you are giving up ownership of your home at a future date in order to get a large loan immediately. This money can be used for whatever you want, ranging from medical bills to general living expenses.
Who can get a reverse mortgage?
You must be 62 years to qualify for a reverse mortgage, which disqualifies a large number of homeowners immediately. The main reason for this is that the home will go to the lender when the borrower dies. Thus, the lender wants to primarily lend to individuals that won't live for many more decades.
Secondly, you need to have some amount of equity in your home in order to actually trade that equity away. If you do not own part of your home, then there are other options for immediately acquiring money, but a reverse mortgage probably isn't the best idea.
When is a reverse mortgage a good idea?
If you anticipate that you are going to live a long time after 62 and aren't concerned about passing your home down as an inheritance, then a reverse mortgage can be a huge net positive. It will give you a lot of money now, with all of the penalties being delayed until you are dead, at which point you probably won't care about whether you or a bank owns your home.
When is a reverse mortgage a bad idea?
Conversely, a reverse mortgage can be a very bad idea if you are intent on passing your home down to your children or anyone else. If you do take out a reverse mortgage, they will need to pay a lot of money or let the house be taken by the lender, either of which will be quite stressful to handle.
Additionally, interest can rise fairly quickly on the home, since none of the balance is being paid off each month. This can lead to extremely high costs if you do change your mind and decide to reacquire equity of your home.
Talk to a financial institution like Weyco Community Credit Union for more information.
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