After retirement, you can find yourself needing more money than you have.
For instance, if you or your partner gets severely sick or hurt, you may need extensive medical care. Or you may want to finally pay off your house or supplement your income so you can live life the way you want. Under these circumstances, you may want to examine your options for a reverse mortgage.
How reverse mortgages work
A reverse mortgage converts part of your home’s equity into cash. Eligible parties can borrow as much as 55 percent of the current value of their home.
To get a reverse mortgage, you apply for the loan with a financial institution that officially offers reverse mortgages, online or with an advisory company. Lenders look at:
- The age of all parties on the title (who must all be at least 55)
- Whether the home is your primary residence
- The current value of your home
- The type and condition of your home
- The location
Based on these factors, lenders will decide if you are eligible and the value of the reverse mortgage you can receive.
The primary drawback is that a reverse mortgage means having less equity, but the benefits of having a large influx of cash and staying in your home can outweigh this.
What can I use this money for?
You can use the money you receive from a reverse mortgage however you see fit, as long as it is legal. Often, people take these loans out to:
- Pay off a mortgage or home equity line of credit
- Renovate or repair the home
- Secure medical care
- Pay for a child or grandchild’s education
Having cash, either in a lump sum or over time, can allow you to pay for these and other expenses you currently cannot afford.
Generally, you pay back the principal and interest at any time. People often repay it when they sell their home, or their estate pays it when the homeowner passes away. However, the specific details of repayment vary, so discussing the terms with lenders is crucial.
So, should we take out a reverse mortgage?
Ultimately, you are the only one who can answer this question. But if you are eligible for this type of loan and have an expense you need cash to cover, it is certainly an option worth discussing.