You have probably heard that using your home equity can help you have ready cash during retirement. What you may not realize is you can gain access to some of your home value as cash with either a traditional mortgage or a reverse mortgage. That is, if you are over 62 years of age and meet other requires. However, you first need to understand the good and the bad of a reverse mortgage.
This is a collaborative post.
Reverse Mortgages and “Free” Money to Borrow
A good part of reverse mortgage application is it gives you “free” money to borrow. However, in this case the money is not truly free. It is free of any immediate obligation, so you will not receive mortgage bills to pay all the time. Yet, you do eventually have to pay it back. The reason that can be good initially is you can spend the money during retirement without being burdened by an extra bill.
Borrowing Method Freedom is Also Helpful
When you borrow mortgage money the traditional way, you usually receive it all at once. Then you start also receiving mortgage bills. You are tasked with repaying the required amount during each bill period. When comparing a reverse loan pro and con list, one of the biggest pros is you can borrow the money however you want to. It does not matter if you request one payment or want to receive several ongoing payments. Either way, none of it has to be repaid quickly.
A reverse loan also offers you the opportunity to select a credit line. While getting money in set amount each months may help you pay your regular household bills on time, a credit line helps with unplanned expenses. It lets you borrow only what you need to pay for those expenses at the time.
What to Know About Borrowing Limit Determination
A reverse mortgage does have borrowing limitations, which is certainly one of the cons. For example, federal regulations prevent the lender from loaning the full value of your home to you. You also cannot borrow reverse mortgage funds and keep a traditional loan active. You have to pay the traditional one right away upon reverse loan approval.
Your Continued Obligations During a Reverse Mortgage
You also need to understand there are some continued obligations you must meet for the duration of a reverse mortgage. The most important is the house has to stay your main residence for as long as the loan lasts. If you move, you violate the loan terms.
Another obligation is you have to continuously keep up with your responsibilities, as the owner of the home. That means paying for taxes relating to the house and property. You also have to show you have a low risk of filing for bankruptcy. That may require a check of your credit.
Controlling the Outcome of a Reverse Mortgage
The level of control you have over the outcome of a reverse mortgage can be both a pro and a con. You can keep the loan active for as long as you live in the home, which offers a high level of control over when you repay the balance. However, you do need to keep in mind that circumstances can sometimes pop up that might cause you to want or need to vacate your home. At that time, your lender will only give you a small window of time to pay the balance back.
Considering All Implications Before Signing Up
Before signing up for a reverse mortgage, as you can see, you have to consider all implications. That includes what will happen when the mortgage agreement finally comes to an end. You do have the option of never paying the balance, but when it comes due the home can be sold when you fail to make the payment. Nevertheless, that risk may seem low when you want or need money during retirement.
*Disclaimer – This is a collaborative post.
