6 min. read by Jason Gelios REALTOR®️/Author
Many people have asked me what a reverse mortgage is and how someone can benefit from it. Like anything else in life there
are pros and cons to this type of mortgage.
I'm going to share with you what a reverse mortgage is and a couple pros and cons that go along with it.
A reverse mortgage is a loan that takes the equity in a primary home and provides monthly cash to the homeowner.
You have to be at a minimum age of 62 or older to qualify. Lenders also typically look for 50% or more equity in your home. Some lenders may look at your debt versus income and credit score just to get an idea of your situation. These factors don't necessarily count as qualifiers.
A homeowner looking to get this type of mortgage will also be required to go through a consumer counseling class to make sure they know what they are signing up for.
So what happens when the loan is due?
Usually the loan becomes do when the homeowner has passed away or has not paid taxes and insurance. A reverse mortgage can also come do if the homeowner moves or sells the property or doesn't make needed repairs to maintain the home.
Here are a couple pros to this type of loan:
It provides a steady stream of income that can last for years and can convert the equity in your home into a pile of cash without having to move out.
The money is tax-free because the IRS considers this a loan. It will also not affect your Social Security or Medicare payments.
Here are a couple of cons to this type of loan:
With a traditional mortgage the debt decreases every month. The reverse mortgage has you increasing your balance on your home but provides you income in hand. There is also the chance that the debt may eventually exceed the homes market value depending on what the market is doing. Children who want to inherit the house could be stuck with a steep bill.
If you are considering a reverse mortgage, you will want to ask yourself these questions,
Do I want to maximize what I can leave to my heirs?
Am I going to stay in my home for the majority of my retirement period?
How much money do I need monthly to be comfortable?
Can I pay the taxes, insurance and handle all obligations associated with a reverse mortgage?
Do I really understand what this loan is and what it does?
Doing your due diligence to see if a reverse mortgage is right for you is crucial to making the right move.
Jason Gelios is a Husband and Father. After that, a Top Producing REALTOR®, Author of the book Think like a REALTOR®, Creator of The AskJasonGelios Real Estate Show and an Expert Media contributor.