If you are considering applying for one, there are five questions about reverse mortgages that you really should consider asking before you even apply.
Each year, thousands of older Americans apply for a reverse mortgage home loan, which can be a viable instrument for tapping into one’s earned home equity and leveraging the capital from it to sustain adequate retirement. If you are considering applying for one, make sure you take some notes from these five questions. Then you can ask yourself if reverse mortgages are a good idea for you.
Do I need a reverse mortgage?
The most important question you should ponder is whether or not you actually need this money. Are you truly prepared to tap this much into your home’s equity to repay these loans, possibly depleting a large portion of what you could leave your loved ones later on? Are you able to make ends meet right now without borrowing? Could you take on a part-time job to meet your obligations? Consider these loans more of a last resort than something that’s financially liberating. Would selling your home and downsizing make more sense? In most cases, the answer is yes.
Will I be able to afford a reverse mortgage?
Reverse mortgages are still loans. They have an attached interest rate, and the balance due will grow over time. As the interest compounds, and as time passes, you will owe more money. Another thing to consider is how long you plan on staying in your home. If you, for example, were to sell your home just a few years later, you could end up getting hit with steep fees that really take a chunk out of your available cash.
Can I really afford to tap into my home equity?
Your home’s equity could be a life-saver in the future, should an emergency arise or should you be forced to make a radical financial decision. When considering a reverse mortgage, you should also account for your future needs. What about home repairs, a remodel, medical bills or retirement assistance? These are all obligations that you may need to meet some day that you could use that equity for instead by selling your home and cashing it out.
Is there a more affordable option?
There may be more affordable choices that you can make aside from taking out a reverse mortgage loan. Are there other financial nest eggs that you can tap into? If so, they should be exhausted foremost. What about getting a HELCO loan and tapping into your home’s equity by using a line of credit that has fewer fees and a lower interest rate attached. And again, what about selling your home and taking the equity in a tax-free payout (if you qualify) and avoiding paying the associated fees and interest altogether?
Am I really sure I know how these loans work?
A reverse mortgage is not like a conventional home loan. There are many differing factors that you should be aware of before you consider taking one out. You should research important info on reverse mortgages before you begin the process. The FAQ published by the U.S. Department of Urban Housing and Development is also a terrific resource.