Millions of Americans expect a safe and. And if they take the right steps earlier in life, they can hopefully put themselves in an advantageous position when they finally decide to end their careers.
But planning for a successful retirement and actually enjoying it are two different things. Sometimes big expenses or cash shortages are unavoidable. A reverse mortgage may make sense for some older homeowners when this is the case.
A reverse mortgage allows homeowners (62 and older) who have paid off or paid off most of their mortgage in full, to use a portion of their home equity as needed. This will qualify as tax free income. However, it must be paid if the homeowner dies or elects to sell the home. Still, it might be worth pursuing if cash is needed.
If you think you would benefit from a reverse mortgage, you can take the first step today by seeing what you qualify for.
The decision to take out a reverse mortgage, especially one that takes years – if not decades – to pay off a substantial home loan, should not be taken lightly. A homeowner should only proceed after fully considering their options.
Should you take out a reverse mortgage?
As with most financial considerations, a reverse mortgage has both advantages and disadvantages. Depending on your personal financial situation, however, some of these may be more obvious than others. Here are some benefits of taking out a reverse mortgage:
Reverse mortgage professionals
- Freed-up equity can help pay off debt, pay bills or complete home repairs. Having extra cash is always helpful, and a reverse mortgage makes that possible.
- Unlike a traditional mortgage, monthly payments are not required toward the loan balance.
- If the homeowner finds themselves in such a precarious position, a reverse mortgage can help pay off the mortgage loan balance and prevent possible foreclosure.
Does a reverse mortgage sound like something you could benefit from? You can easily check your eligibility now.
Reverse mortgage cons
- Closing costs and other fees can eat up some of the profits planned for use — and won’t be made. Those figures would be collateral damage for taking out a reverse mortgage.
- This reduces the cash value of your home. Whatever your home was worth before taking out a reverse mortgage, it will now be the amount of the mortgage, plus fees and deductions . This is an important consideration for those planning to leave their home (and its equity) to family members upon their death.
- While it won’t be added to your annual taxes (a reverse mortgage isn’t considered income), it can negatively affect your chances of qualifying for other assistance programs like Medicaid.
As mentioned above, a reverse mortgage can be helpful if you need tax-free cash. You can now easily check eligibility online or use the table below to start shopping for providers
What about cash-out refinancing?
If a reverse mortgage isn’t beneficial to your personal finances—but you still want to get cash out of your home—consider it.. It works like this: You take out a new mortgage loan for more than your current loan. With the new loan, you then pay off your existing loan and receive the difference between the two (your current loan and the new loan) as cash.
Many lenders let you take out up to 80% of your home’s value (so if your home is worth $500,000, for example, you could potentially take out $400,000). AHowever, closing costs are required, so consider that when trying to determine how much you want to withdraw. Still, it can be a good option for those who want to use their home as a source of income.
Answer a few short questions now and find out if cash-out refinancing could work for you.