I’ve seen a number of TV commercials recently touting the advantages of a reverse mortgage. You may have seem them, too, and wondered whether they’re a good or bad idea.
The biggest pro of a reverse mortgage is that it allows you to tap into the equity in your home to help you enjoy a better retirement. It’s a reverse of conventional mortgages because instead of you making mortgage payments to a lender each month, a company makes payments to you.While
There are several reverse mortgage companies–including the ones that you’ve seen advertising on TV–probably the most important reverse mortgage currently available is the Home Equity Conversion Mortgage or HECM. It is actually issued and insured by the Department of Housing and Urban Development (HUD). If you are age 62 or older, own your primary residence free and clear or could pay off your mortgage fairly easily, you could get an HECM.
How much could you get?
If you are interested in getting a reverse mortgage the amount you can get will depend on three things. First, is the value of your home. The more it’s worth up to a maximum of $625,000 the more money you can get. The second factor is is your interest rate. Since interest payments are tacked on to the principal over the life of your loan, the lower your interest rate the more you will be able to borrow. Third, is your age. Because interest payments accrue over time, the older you are, the more you will be able to borrow.
No free money
Notice how I said “borrow.” This is because the money you get from reverse mortgage isn’t free money. You’re actually borrowing from the equity in your home. The more money you borrow, the less equity you will have left. If you live a very long life, you could end up with no equity at all.
How your get the money
If you do get a reverse mortgage, there are four ways you can take the money.You can take it as fixed payments over a fixed period of time, as fixed payments for as long as you live in the home, as a line of credit or in one lump sum.
How much can you expect to get? Since there are so many variables involved. The best way to get an answer to this question is to use a reverse mortgage calculator.
No income tax
Another good thing about a reverse mortgage is that the money you get is not taxable. It should also not have any effect on your Social Security or Medicare benefits.You keep the title to your home and don’t make any monthly repayments. However, because a reverse mortgage is a loan, the money you get must be repaid when the last surviving borrower dies, moves out of the house or sells it.
The not so good
There are several negatives associated with a reverse mortgage loan. They tend to be complex and you need some very good counseling in order to make a good decision. Some of the advertising is misleading, your spouse may not understand the transaction and you still have to pay taxes and insurance just as if it were a standard mortgage. In addition, a reverse mortgage can cost as much as eight thousand dollars in costs versus the five thousand dollars you would pay for a conventional mortgage.
If you need help with debt
If you’re having a problem with debt, a reverse mortgage would probably not be a very good answer. On the other hand, we here at Debt Consolidation USA could help. We have debt professional who can negotiate with your creditors to get your debts reduced – usually for a fraction of what you owe- and your interest rates as well. We work to match you with a reputable debt settlement company that will negotiate good settlements and where you don’t pay a single cent until all your debts have been settled. If you are looking for a good way to handle your debts, give us a call, chat with us, or fill out the form and get your free debt analysis.