Oxford Funding is your number one option when it comes to getting an installment loan. However, installment loans do not work for other purposes, such as getting a new car or a reverse mortgage.
In that case, if you want to buy a new property, the most convenient way to do it in our country is with the help of a mortgage (unless you have all the cash needed to pay upfront).
So, basically, that’s the concept of mortgages, but what if we told you that reverse mortgages are also a thing?
Understanding what is a reverse mortgage and how does it works will allow us to comprehend if we really need one.
Therefore, in this blog post, we will cover the following topics:
- Reverse mortgage definition
- Reasons to use a reverse mortgage
- Reverse mortgage types
- Advantages and disadvantages of reverse mortgages
What is a reverse mortgage?
At first, the concept of reverse mortgage might seem confusing for people that are not familiar with this topic.
Basically, a reverse mortgage is a type of loan that allows property owners, of ages 62 and older, to borrow a part of their home’s equity.
This typically applies to people who already paid off their mortgage, and the money received is totally tax-free. So, the lenders pay the homeowner, just the opposite of a traditional mortgage.
So, is this money just given back to the homeowner and that’s it? No.
The loan must be paid back when the borrower moves out, sells the home, or dies.
There’s a maximum amount of money that a homeowner can borrow, which depends on the home’s value and the current interest rates of the market.
In the beginning, reverse mortgages were conceived to help retired people cover basic monthly expenses. But, of course, this would take place only if the retired individual didn’t have enough money to pay for health care or other expenses.
Nonetheless, there isn’t any type of restriction on how the money received from a reverse mortgage can be used or not.
What are the requirements to get a reverse mortgage?
First of all, the primary requirement is that the homeowner should be 62 years old or older. The homeowners must:
- Live in the home as their primary residence.
- Remain current on property taxes and other mandatory legal obligations.
- Maintain the property in good condition.
- The property must be a single-family home, a condominium, or a townhouse.
However, sometimes if a person doesn’t qualify for these requirements, there’s the possibility to meet other eligibility criteria, but this highly depends on the specific conditions of the homeowner.
Types of Reverse Mortgages
There are three main types of reverse mortgages. Each one of them fits a different need, so be sure to check them all before making a final decision.
- Proprietary reverse mortgage: in this type of loan, you’ll receive a more significant sum of money depending on if you have a high-valued home or not. Also, it is not backed up by the government.
- Single-purpose reverse mortgage: nonprofit organizations usually offer this type of reverse mortgage in order to let the borrowers use the loan to cover one specific purpose.
Home Equity Conversion Mortgage (HECM): this is the most common type of reverse mortgage. These mortgages have higher upfront costs, but the borrower can use the funds for whatever they want. These are offered only by lenders approved by the Federal Housing Administration.
Pros and Cons of Reverse Mortgages
So, what is the downside to a reverse mortgage? After all, nothing is always perfect in this life and you know it.
Obviously, every type of loan has fees that the borrower needs to cover, but let’s understand the advantages and disadvantages of reverse mortgages of reverse mortgages in detail.
Do I really need a reverse mortgage?
It all depends on your specific needs and requirements.
For example, if you are presented with an unexpected medical expense and you don’t know how to pay it, then yes, a reverse mortgage can be an excellent solution for this.
You can even use the loan to cover the costs of home repairs. But, unfortunately, getting new income during retirement years is not easy for all of us.
Supplementing the Social Security income is a constant problem that many retirees in our country experience on a monthly basis.
Reverse mortgages allow borrowers to receive money in different flexible ways, such as monthly payments, a lump sum, or even a combination of these two.
Besides, there’s something incredibly positive about this kind of loan: if the home appreciates over the years and its value increases, this could be useful to pay off the reverse mortgage loan balance.
Nonetheless, the opposite can also happen. If your home loses value, you or your heirs may need to cover the hypothetical expenses of the loan.
That being said, the reasons that can lead us to take a reverse mortgage are diverse and varied. At the end of the day, it all depends entirely on us.
That’s why it is utterly important to maintain ourselves constantly educated whenever we can. This way, we can be sure that we are making the right choices when it comes to our future and financial stability during our retirement years.