Can A Reverse Mortgage Help You Make Your Bills?
Even with unconventional mortgage products either disappearing or becoming harder to qualify for, you can still opt to get a reverse mortgage if you are 62 years or older. This loan product works to pay you money on a monthly basis, instead of you paying the bank money for your mortgage. You do have to have significant equity in your home and have to meet basic requirements that vary from lender to lender. A reverse mortgage works well for someone who intends to stay in his or her home for at least several years after the reverse mortgage has been taken out. Ideally, one would stay in the home until one dies because upon death the estate will settle any difference in the balance sheet. The plus side of things is that the monthly stipend you receive is tax-free and does not count as income. A home is the greatest asset most people own. If you have other ways to obtain retirement funds, however, then this should be tapped first. A home is more than a bank account. It is a place full of memories and many of your children may want to be able to keep the family home instead of selling it to a bank. There are psychological issues to regarding how you feel about selling your mortgage to a bank. If you are in need of cash and you are close to retirement, you will want to check out different loan products to help you make ends meet. Some people like the idea of being able to live in their home while they have no more mortgage payments and, instead, have a bank paying them to live there. But, there are costs associated with the loans, just like every type of loan vehicle.
Costs of Reverse Mortgages
The cost of a reverse mortgage comes in fees, plenty of them. The origination fees can be upwards of $6,000. The closing costs can easily equal anywhere from 8 to 10% of the loan amount. On a large mortgage, the closing costs increase. If you sold your home, you would not be paying origination fees or closing costs, the buyer would be doing that. However, you still have to consider the market and how much you would pay a realtor to sell your home. Even taking this into account, most realtors will sell for 6% of the home's total sale value. The application process for a reverse mortgage is as lengthy or more than an application for buying a home. This is not a quick process and it needs to be done with care and foresight. You do want to make sure to have a lawyer review the documents so that you are getting the right exchange of cash for the value of the home. Since you will still be living in the home, you want to make sure that you understand the conditions for living there and what might cause legal problems with a reverse mortgage down the road. In some states, you may even be required to undergo counseling before you can qualify for a reverse mortgage. There are many variables that are not easily foreseen and the psychological impact of the decision as well as the economic aspects need to be carefully thought out.
Does It Have To Be Fixed Monthly Payments?
Obtaining fixed payments are just one option in a reverse mortgage. There are a couple of other loan products out there that allow you to take a lump sum or use the reverse mortgage as a line of credit. If you need a product with something that includes some aspects of each of these payment plans, then you might be able to customize something that allows an initial lump sum with fixed payments later. Bankers are willing to be flexible with the type of payment plans out there. How much money you are able to finance from your home is dependent on a variety of factors and can also influence your final decision. How old you currently are will determine whether payments increase or decrease. The value and location of your property will also determine how much equity is available to be tapped.
The Local Real Estate Market
Reverse mortgages work well in areas where prices have appreciated significantly. However, if prices are falling then it can influence whether a banker will give you what you consider top dollar for your home. In addition, with some risky markets where more homes are for sale in inventory than are being bought, there may be an issue of whether the bank can recover the amount spent on the home, no matter what the cost. There are statistics, however, that show that there has been a large increase in people taking out reverse mortgages as a way to sit tight in a home in areas where prices have risen too high to make moving an option.
Not Short-Term Loans
If you have a medical condition and you've tapped out all your other options, a reverse mortgage may be one way to find some extra money. It is not a short-term loan, like a cash advance. It is meant for long-term end-of-life issues. In some cases, you can waive a 2% fee for an FHA reverse mortgage if you are using the funds for medical long-term care in the home. If you do have short-term medical emergencies, you should consider alternate loan vehicles, particularly if you are under 62 and don't qualify for a reverse mortgage in the first place. As long as you have some employment history, you can qualify for a cash advance. The amount you can borrow at any one time for a cash advance is between $300 to $600 and should be repaid on the next paycheck cycle. These types of loans can put ready cash in your pocket quickly and they are discrete and do not require your home or any asset as collateral. This can help at times when you just need a little extra money to pay for prescription or an outpatient medical procedure.