Before obtaining a reverse mortgage, you should consider the following. The Getty Images/iStockphoto collection
Numerous Americans anticipate a calm and financially secure retirement. And if they make the correct decisions early in their careers, they will ideally be in a secure position by the time they decide to retire.
However, planning for a prosperous retirement and really being able to enjoy it are two different things. Occasionally, large expenses or monetary shortages are unavoidable. For certain senior homeowners, a reverse mortgage may make sense in this situation.
A reverse mortgage allows homeowners (62 and older) who have paid off their mortgage in whole or in large part to access a portion of their home’s equity. This income would qualify as tax-free. However, it must be reimbursed if the homeowner passes away or decides to sell the property. Nonetheless, it may be worthwhile to pursue if money is needed.
If you believe that a reverse mortgage would benefit you, you may take the first step today by determining your eligibility.
After years, if not decades, of paying down a sizable mortgage, the decision to obtain a reverse mortgage should not be taken lightly. A homeowner should act only after carefully weighing their options.
Should a reverse mortgage be obtained?
As with the majority of financial concerns, reverse mortgages include both pros and negatives. However, depending on your individual financial circumstances, some of these may be more prominent than others. Here are several benefits of obtaining a reverse mortgage:
Reverse mortgage pros
The released equity might be used to reduce debt, pay off debts, or make house repairs. It is always beneficial to have extra cash, which a reverse mortgage can provide.
Unlike a conventional mortgage, monthly principal payments are not required.
In such a precarious circumstance, a reverse mortgage can assist in paying off the mortgage loan debt and preventing possible foreclosure.
Does a reverse mortgage sound like something that could be advantageous to you? Check your qualifications and begin the application process immediately.
Reverse mortgage drawbacks
Closing costs and other fees could consume a portion of the anticipated profit, which cannot be recovered. These numbers are collateral damage for obtaining a reverse mortgage.
It decreases the home’s market value. Before obtaining a reverse mortgage, the value of your home would be reduced by the mortgage amount, fees, and closing charges. This is a crucial factor for those who intend to leave their home (and its equity) to family members upon their passing.
A reverse mortgage is not considered taxable income, so it will not be added to your annual tax bill. However, it may alter your eligibility for other assistance programs, such as Medicaid. Before action, take sure to examine the potential repercussions.
As stated previously, a reverse mortgage could be useful if you require tax-free cash. However, you should still weigh your options before proceeding. If you believe that this is the greatest and most prudent financial decision for you, start the application process for a reverse mortgage today. It could take weeks (or even months) to obtain the funds, therefore it is prudent to begin early.
How does cash-out refinancing work?
Consider cash-out refinancing if a reverse mortgage is not a good fit for your specific financial situation, but you still want to obtain cash from your house. Here’s how it works: Simply obtain a new mortgage loan for a bigger amount than what you owe on your present loan. Then, you pay off your existing loan with the proceeds of the new loan and pocket the difference between the two loans.
Numerous lenders may permit you to remove up to 80% of your house’s value (thus, if your home is worth $500,000, you might theoretically withdraw $400,000). Consider the closing expenses associated with a cash-out refinance when determining how much money you wish to withdraw. Those wishing to use their home as a source of income may still find this to be a viable alternative.
Contact an expert in mortgage refinancing who can further explain the benefits of this exceptional financial opportunity