As the opposite of a conventional mortgage, a reverse mortgage pays senior citizens by liquidating their property. Reverse mortgages are advertised as the financial solution for those above age 62 who own a home and need additional income. This financial instrument utilizes equity to provide you additional income, although the beneficiary must give up possession of the property. Despite the serious implications of using a reverse mortgage, some persons use it because of one or more of the advantages it offers.
♦ Access to home equity
The reverse mortgage gives seniors the option of accessing equity. There is the option of home equity loans and lines of credit, but those bear foreclosure risks. The reverse mortgage has its own risks, but it is a decent option for those who might not be able to access home equity in other ways.
♦ Flexibility with payment options
The major benefit of the reverse mortgage is that it pays the applicant (although the applicant would bear responsibility for insurance and general upkeep of the property). In addition to that, there are flexible payment options. The applicant can receive the loan proceeds as a monthly payment, line of credit, or a lump sum.
♦ Easy qualification
Eligibility for a reverse mortgage loan is not based on monthly income or credit scores. This makes it less complicated than other loans. The lenders are primarily concerned with the value of the property and its equity. Seniors who own a home, do not have liens on the property, and live on the property have a fantastic chance of benefitting from the reverse mortgage.
♦ The reverse mortgage applies to several types of housing units
Whether it is a mansion, a bungalow, or a small condo unit, lenders are interested in ownership and whether you actually reside on the property. Unlike other home equity loans, the type of housing unit is less significant.
♦ Lenders cannot force homeowners to repay the cash they received once they are living in the house
With this mortgage loan, there exists no stipulated maturity date. If the applicant moves, sells the property, or is unable to maintain the property, the loan becomes due. However, the mortgagee is allowed to live on the property for as long as they live otherwise. The lender must abide by this; the decision to pay off the reverse mortgage loan can be made by the mortgagee.
♦ It can be used as a strategy to reduce estate taxes
Reverse mortgage loans help to liquidate an asset (property). For those who are marginally above the estate tax threshold, a reverse mortgage can be used as a strategy to reduce the chargeable income for estate taxes. However, number crunching would have to be done in consultation with an estate tax attorney before this loan is utilized for that purpose.
Reverse mortgage loans have a few disadvantages, primarily the loss of property for beneficiaries and the associated mortgage fees. Before using this strategy to protect against longevity risk or improve your lifestyle, consult with family members and relevant professionals to make sure that the reverse mortgage loan can work for you. Once you are in a position to benefit from it, the aforementioned benefits would apply to you and your circumstances.