We are living in uncertain economic times, and many older homeowners are finding that their financial needs have outlasted their savings accounts. The reverse mortgage is a creative financial solution available to homeowners 62 years or older that, in the right situation, can convert equity into cash.
How Does a Reverse Mortgage Work?
The reverse mortgage was originally developed to give retirees with excellent home equity and limited income a way to cover their basic monthly expenses and health care costs. In a nutshell, a reverse mortgage converts a homeowner’s home equity into cash. Rather than the homeowner making a payment to the lender each month, the lender actually makes a payment to the homeowner. This payment is based on a percentage of the accumulated equity in the home, age of the borrower, and interest rate.
A reverse mortgage can take the strain off of older homeowners in need of cash because the loan does not need to be repaid until the borrower dies or sells the home. At that point, the proceeds from the sale of the home are used to pay back the bank. Any equity remaining after paying back the lender then goes to the borrower or, in the case of death, the heirs.
Should You Say Yes to a Reverse Mortgage?
As with any major financial decision, a reverse mortgage has benefits and drawbacks. On the plus side, a reverse mortgage does not require monthly payments to the lender, can be utilized to pay off debt or unexpected expenses, can improve monthly cash flow, and can even be used to pay off the existing mortgage! On the other hand, a reverse mortgage only remains valid if the homeowner remains current on all property taxes and homeowners insurance costs. One of the biggest downsides associated with a reverse mortgage is the fact that it can make it difficult or impossible to pass the home down to family members.
If you think a reverse mortgage might be able to improve your financial situation and help you seek a higher quality of life, be sure to contact an estate planning attorney like Kimberly K. Muenter, P.A to get professional legal advice. Attorney Muenter specializes in elder law and has helped hundreds of senior citizens make prudent decisions to protect their assets, meet their financial obligations, and provide for their families. You can reach her today at 941.567.1671.