Reverse Mortgages – Good Or Bad?

The option of reverse mortgage is a very suitable option for certain people. However, one must carefully weigh the pros and cons of this type of mortgage before thye make a commitment either way.

Reverse mortgages are basically very specific financial vehicles that only a certain type of people can qualify for. Defining these mortgages is a hard task as they combine qualities of both a mortgage and an annuity. Essentially it is a contract in which the mortgage on a house is used for paying an annuity.

As the borrower, you and a mortgager sign a deal according to which the mortgage will pay you regularly during the remainder of your life. In return, the mortgager will become the owner of your property after your death. This option is offered as a way of giving seniors a steady source of income after their retirement. It’s also designed for helping seniors stay in their homes longer.

Some Limitations

A reverse mortgage can sometime turn out to be an undesirable option as it does not provide any flexibility. Restrictions have been placed by the federal government on who can use this financial instrument and how it can be used. Most importantly, you will have to be at least 62 in order to get a reverse mortgage.

The option is only available for the home that is your main legal residence. It is not available for any other of your properties including a summer house or a rental apartment. If you are a renter or have other types of real estate, a reverse mortgage is not an available option.

The money you will get under this type of agreement will depend on the equity in your house. Getting a reverse mortgage deal for the full value of your property is possible if you don’t have any home loans or mortgages to pay. If you have loans or mortgages on your home, then those loans/mortgages will be deducted from the mortgage amount.

The full amount of the mortgage will be your liability if you rent or sell the property during your life. So, in order to make this option work, you will have to stay in your home and not make the home into a rental property at any time.

There is however one exception to this rule for those who are forced to move into a nursing facility or enter into an assisted living agreement. There is also something else to consider – due to the reverse mortgage agreement, you won’t have the option of transferring the property to any of your heirs.

Alternate Options

Considering all the factors a reverse mortgage is a good option for people who own their property free and clear and don’t want to live anywhere else. For instance, John is 63 and has retired recently. He likes his neighborhood, loves his home and likes to be near his kids as well as grandkids who live close by. His lifetime savings are limited but he has recently made the final mortgage payment on his house. John is the ideal person to go into a reverse mortgage deal.

Arthur is also 63 and very close to retirement. He has paid off the mortgage but doesn’t like the idea of mowing lawns and shoveling snow in his golden years. He’s thinking of moving to California. Arthur on the other hand is not a good reverse mortgage candidate because he’s not certain about living in his home. He would be better off if he sold his property and utilized the money to purchase an immediate annuity. This way he would be able to get a regular income that he can use even while living in another state or country.

So suffice it to say it is difficult to say whether or not a reverse mortgage is right for you. There are definitely plus and minuses for either person considering a reverse mortgage. As each person situation is uniquely different the best thing you could do is speak with a real estate agent who has experience with reverse mortgage lending to see if this option is right for you.

 

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Curry Team Realty
DBA You First Real Estate

 

4720 Salisbury Road - Suite 236
Jacksonville, FL 32256

 

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