How is a Reverse Mortgage Different from a Regular Mortgage?
As you know, when you get approved for a mortgage you are given a very large sum of money upfront. You use this money to purchase a home, and then each month you are required to pay the lender back a portion of the principal amount plus interest.
With a reverse mortgage, you aren’t given a lump sum of money at once, and you don’t have to make any monthly payments.
How Does a Reverse Mortgage Work?
Once qualified for a reverse mortgage, the lender will give you a pre determined amount of money each month. This money is tax free, and you can spend it one whatever you like! As a Mortgage Broker in Surrey, I view reverse mortgages as an excellent way for house-rich homeowners to cash in on some of their equity.
By accessing the home’s equity in this way, you have more financial freedom, without requiring to downsize. Previously, seniors wanting to increase their spending money each month were forced to down size in order to access the equity. Nobody wants to leave their home, so a reverse mortgage is often the perfect solution.
The amount of loan is not required to be paid back until you pass away, or sell your home.
How can I get a Reverse Mortgage?
The first step is by speaking with your trusted mortgage expert. Unfortunately, not everyone qualifies for a reverse mortgage, so it is important that you meet the criteria. In order to be considered for a reverse mortgage you’ll need to be able to meet these 2 requirements:
- You must own your own home. Although it is important to note, that you are not required to own it outright.
- You must be at least 55 years of age.
With so few requirements, it’s no wonder more and more seniors are taking advantages of reverse mortgages.
Benefits and Drawbacks of Reverse Mortgages
The most obvious benefit of getting a reverse mortgage is having extra income. That income is tax free, and you can spend it on literally anything you like. Many reverse mortgagors report that not having to make any monthly payments is a huge benefit. Possibly the most popular advantage of getting a reverse mortgage is not having to downsize. When you’ve lived in your home for many, many years and feel comfortable there, the last thing you want is being forced to move to a strange place due to financial reasons.
Looking at the drawbacks of reverse mortgages, there are only a few things to take note of. One of the major points is that by taking out a reverse mortgage, you are giving up a portion of the equity in your home. This means that when you pass away, there will be less money given to your beneficiaries. If you have children who are depending on the money from your estate, it is as important discussion to have. Lastly, the interest rates for reverse mortgages are often slightly higher than those of a conventional mortgage. But, compared to the alternative product – a home equity loan, rates are lower.