A reverse mortgage could be a key component to your retirement planning, providing funds now and for the future. But it’s not the right choice for everyone’s financial situation. Take a moment to understand the pros and cons of getting a reverse mortgage on your Redding real estate and determine if it’s a wise decision for you.
What is a Reverse Mortgage?
With a traditional mortgage, the homeowner makes payments to reduce their debt. And as you may have guessed, a reverse mortgage is just the opposite. With this loan type, the balance grows over time because the homeowner is receiving equity rather than making monthly payments. It uses the home’s equity as collateral, and the amount of money you can receive is determined by several factors such as your age, the home’s value, and the maximum lending limit.
This loan type is commonly used to pay for home renovations, medical bills, and daily living expenses. Homeowners who have an existing mortgage often use the reverse mortgage loan to pay off their remaining debt and eliminate monthly loan payments. If you don’t plan to move and can afford the cost of maintaining your home, you could benefit hugely from a reverse mortgage loan.
To be eligible for a reverse mortgage loan in California, the youngest homeowner will need to be at least 62 years of age. Borrowers must also meet financial eligibility criteria as established by HUD, but good news, most single-family homes are eligible. You can receive the cash from the loan through a line of credit, a lump sum, or monthly payments.
Pros of a Reverse Mortgage
- If you’re 62 and older, it’s a loan option making retirement much more comfortable
- You are able to still live in your home and own the title to it
- You can receive your funds as a lump sum, line of credit, or monthly payments
- The funds you receive can be used to pay off your existing mortgage
- You are not required to make monthly principal and interest payments on the reverse mortgage, so you will be freed from the monthly mortgage payment expense. (As with any home-secured loan, you will continue to be responsible for paying for property-related taxes, insurance and upkeep)
- No monthly mortgage payments are required as long as you live in the home and meet your obligations as a taxpayer and homeowner
- Closing costs and fees can be financed with the reverse mortgage loan, keeping out of pocket expenses to a minimum
- Loan proceeds are generally not considered taxable income
- Generally, a reverse mortgage loan will not affect Social Security or Medicare
- If your home increases in value, you can refinance your reverse mortgage to access even more proceeds
- A reverse mortgage loan is a non-recourse loan. This means you are not personally liable for any amount of the mortgage that exceeds the value of your home
- After the loan is repaid, any remaining equity belongs to you
Cons of a Reverse Mortgage
- The loan balance increases over time as interest on the loan accumulates
- As home equity is used, a smaller-sized asset is left to your heirs. Usually, the loan is paid off by selling the home, but it can also be done by using other funds or by refinancing through a traditional mortgage
- Fees can be higher than those compared to a traditional mortgage
- It may affect your eligibility for needs-based government programs, such as Medicaid or Supplemental Security Income
- The loan becomes due and must be repaid when a “maturity event” occurs, such as the last surviving borrower (or non-borrowing spouse meeting certain conditions) passes away, the home is no longer the borrower’s principal residence, or the borrower vacates the property for more than 12 months
- The loan will also become due if the homeowner fails to pay their property taxes or homeowners insurance, or fails to maintain the property
*This is a loan that must be repaid. Borrower(s) must be 62 years of age, are responsible for property taxes, homeowners insurance, maintenance of home, HOA dues and must be primary residence. Eligible non-borrowing spouse may be under 62. These materials are not from HUD or FHA and this document was not approved by the Department or Government Agency
*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation
The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.
* For loan examples and more information visit our disclosure page at https://www.uslendingcompany.com/disclosures/