reverse mortgage illustration

The Pros and Cons of a Reverse Mortgage

Is a reverse mortgage for you? A reverse mortgage can be a valuable retirement planning tool that can greatly increase retirees income streams by using their largest assets: their homes.

If you’re 62 or older and want money to pay off your mortgage, supplement your income, or pay for healthcare expenses, a reverse mortgage is something you may consider. It allows you to use the equity in your home without moving out. Rather than paying monthly mortgage payments, you get an advance on the equity you have in your home.  It can be an attractive option as the money you receive is not usually taxable and typically does not affect your Social Security or Medicare benefits.  However, the interest payments on the loan are not tax deductible. A reverse mortgage can be complicated and might not be right for you. There’s a lot of information out there about reverse mortgages. Before you make your decision, please check out this consumer information regarding reverse mortgages from the Federal Trade Commission.

Still interested? To find out whether or not a reverse mortgage is right for you, here are a few of the basic questions you can ask yourself:

  • Are you at least 62 and own your own home?
  • Do you plan to be in your home for at least 5 years?
  • If you’re getting the loan to purchase or pay off something specific, have you looked into other options for financing those expenses?
  • Are you comfortable with the terms of the loan?

The more of these questions you can answer “yes” to, the more ready you are for a reverse mortgage.

A major con of a reverse mortgage has to do with the costs involved, which can include the interest rate, loan origination fee, mortgage insurance fee, appraisal fee, title insurance fees, and various other closing costs, are extremely high when compared with a traditional mortgage. Costs vary but can be as high as $30,000 or $40,000. This cost is not paid out of pocket, but rolled into the loan.

Also, if you decide to sell your home, or leave for a year or more, keep in mind you will still be responsible for loan. This may not sound like a problem now, but if you ever need to enter a full-time care facility, the loan would become due if you left your home for a year or more.

Another downside to the reverse mortgage has to do with your estate. A reverse mortgage will most likely decrease the equity in your home; meaning less money will be left to your heirs.

The bottom line, do your due diligence before entering into a reverse mortgage. If you are looking to move to Napa Valley to enjoy your retirement in style, I have all the information available on recent public and private sales in this area. Feel free to contact me at 707-738-4820 or email [email protected]. As a top producing Realtor® in Napa Valley, I have access to some extraordinary wineries, vineyards, estates and homes in Napa, Yountville, Saint Helena and Calistoga that are not on the open market. The inventory is extraordinary right now and each and every property has spectacular views. I look forward to helping you buy or sell your property in this beautiful part of the world.

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