Simply stated, a reverse mortgage allows you to tap into the equity of your home, allowing you to stay in the home for as long as you like. Unlike a traditional mortgage — where you make monthly payments of principal and interest — a reverse mortgage has no monthly payments. The mortgage is paid off in full when the home is sold. In addition, you are not under any obligation to sell your home.
If you stay in your home until you die, then upon your death the house would be sold and the proceeds used to discharge the mortgage. If, for some reason, the house sold for less than the outstanding mortgage, neither you nor your estate nor your beneficiaries would be liable for the shortfall. The mortgage company assumes that risk.
If you qualify, a reverse mortgage might ease your financial situation since you could use the proceeds to pay off any existing mortgage. In addition, if you are able to withdraw more money from your home, you could use that money for anything you want.
Many seniors believe that reverse mortgages are something to be avoided at all cost. However, that is not the case. There are many situations where reverse mortgages make sense. A reverse mortgage is a great financial tool for a senior with financial issues, equity in their home and the desire to stay in the home long term.
Obtaining a reverse mortgage is a little different than obtaining a traditional mortgage. There are literally hundreds of different programs available for traditional mortgages. In addition, while fee structure and interest rates vary dramatically between different companies, this is not the case with reverse mortgages. Reverse mortgages have become very standardized and there are not a lot of options available to you. In today’s difficult economic times, seniors who are struggling should at least consider a reverse mortgage. The money from a reverse mortgage could be used to pay off an existing mortgage, pay off a high-interest charge card debt or even be used to provide additional cash flow on a regular basis.
The question to ask is do you plan to be in your home long term. If the answer is no, then a reverse mortgage is most likely not for you. However, if you are having financial issues and plan to be in your home long term, a reverse mortgage is definitely something worth exploring.
It is advisable for anyone even thinking about a reverse mortgage to consult with a financial advisor to see if a reverse mortgage makes sense for your particular financial situation.