If you are a homeowner approaching retirement, you may have heard about a reverse mortgage. This is often presented as a way to increase your monthly income. There are several factors to consider when thinking about a reverse mortgage. You can use this overview of how a reverse mortgage works to determine if it is the right option for you.
Reverse Mortgage Basics
A Reverse Mortgage is essentially a type of loan that is based on the equity you have in your home. A lender pays you a certain amount every month based on the amount of the loan. The balance of the loan is typically paid by the sale of the home after you move out or pass away. You receive reliable income in exchange for the equity you have built up in your home.
A reverse mortgage with a lender such as Sun West Mortgage may provide you with several unique benefits. You can supplement your retirement income to cover living expenses. With the income from a reverse mortgage, you may be able to avoid spending your retirement savings too quickly. In some cases, a reverse mortgage may be used as a line of credit. Because the loan accrues interest over time, the value of any unused portion also increases over the term of the agreement. You allow a reverse mortgage line of credit to passively grow until you need to use it.
When you are deciding if a reverse mortgage is right for you, there are several other important things to understand. You must meet certain eligibility requirements to apply for a reverse mortgage. For example, you can’t apply unless you are at least 62 years old. A reverse mortgage is only available on a home that you use as your primary residence. Additionally, you must own your home outright, or have a very small amount left on your mortgage. In most circumstances, you will also be responsible for the cost of taxes, home insurance, neighborhood association fees, and maintenance costs. You must have a reliable source of income that will allow you to cover these expenses. Most reverse mortgage agreements are based on the idea that the home will be sold to pay for the balance of the loan. So you may not be able to leave your home to your heirs as an asset if you choose to get a reverse mortgage.
If you own your home and need an additional source of monthly income, a reverse mortgage may provide many benefits. A mortgage provider can help you understand the application requirements and the potential amount of income.