A reverse mortgage is an opportunity to use your home as an investment all over again. In a typical home loan, the buyer borrows money to buy the home and then pays it back over a period of time. In this situation, though, the cards are flipped. The lender pays you a portion ever month or annually and, when you are no longer living there, takes ownership of the property. This can be an ideal situation for many people. It is important to consider the long term benefits of this type of plan and to determine if it is the right option for your needs.
When It Makes Sense
There are some situations in which a reverse mortgage does make sense. In other cases, it may not be a wise decision. Keep in mind that there is interest and fees associated with the process. Aside from this, you must own your home outright or be close to it. You also must be at least 62 years of age to qualify. If you fit these elements, the next step is to consider if this type of loan will benefit you.
- Do you need to add to your income during your retirement years? The benefit of this type of loan is often to have supplemental income to your monthly budget to pay for your needs.
- Will you benefit by having access to a lump sum payment? In other forms of this loan, you can borrow a lump sum. For some, the benefit here is to make significant remodeling changes or to use the borrowed funds for another property investment.
- Are you okay with not passing down the property to heirs at the time of your death? Since this is the most common scenario in which the home is transferred to the lender, it is important to consider. Do your heirs expect to receive the home or wish to buy it? If so, they would need to do so at the time of the last owner dying or leaving the residence.
It is also important to consider if the benefit and amount of money you are given really makes it worthwhile, after factoring in all costs associated with the obtaining of the loan. If so, then make the decision to invest. If not, it may be best to find another option. A reverse mortgage can give you the income you need during your retirement to live the lifestyle you want to live. However, it may or may not be right for you. To find out, talk to an investor to find out if this type of loan is the best option for your needs.