By Solid Serenity Legal Solutions
Though reverse mortgages should be used with caution, and only in certain circumstances, they get more of a bad wrap than they deserve. Today, we’ll discuss 3 myths about reverse mortgages.
(1) Reverse Mortgages are Loans with High Interest Rates
Though there are fees associated with reverse mortgages, reverse mortgages do not have high interest rates. Generally, reverse mortgage interest rates are similar to those of traditional 30 year mortgages.
Reverse mortgage rates can even be lower than traditional 30 year mortgages because they do not have the same income and credit score requirements as traditional mortgages. This allows companies more flexibility to offer lower rates to their senior customers.
(2) Reverse Mortgages Cost Too Much
Reverse mortgages do require closing costs, interests, and insurance premiums. However, they can be useful in some, limited, situations.
Reverse mortgages do not require monthly payments as long as the person borrowing the money lives in the home. They are also non-recourse loans, meaning the company holding the loan can only foreclose on the property if the mortgage isn’t paid. They cannot come back on the borrower for additional funds.
(3) Reverse Mortgages are Only a Short-Term Solution
Reverse mortgages do require balloon payments over the course of the loan. This requirement may make people believe they should not hold a reverse mortgage for any real length of time.
But, since reverse mortgages are non-recourse loans, if the borrower dies, their estate is only liable for the debt on the home up to the value of the home. The estate would not have to pay any additional money to the mortgage company over that value.
So, in reality, if you wind up getting more money out of the loan than your home is worth, you win in the end. This aspect of reverse mortgages shows it might be in your best interests to consider a reverse mortgage earlier in retirement, rather than later. You would be able to maximize the amount of monthly payments you can receive without making monthly mortgage payments, and secure the loan with an asset that winds up being valued at less than the amount you received.
If you are considering a reverse mortgage in your retirement strategy, be sure to research them, and carefully consider the pros and cons for your situation before taking out the loan.
Contact your trusted financial and retirement advisor to discuss your options today!