The number of expenses along with very little income can cause several inconveniences for a retired person. To help them live a comfortable life, a reverse mortgage loan has been designed by financial institutions. This mortgage helps to cover retirement expenses while the debtors continue to reside in their home. Though it offers various benefits to a retired person, one must consider the following important factors to determine whether they need to get a reverse mortgage:
1. Gain a comprehensive understanding
The eligibility criteria for a reverse mortgage is to reside in the home that is your primary residence. The concept of this mortgage is a bit different than a traditional one. While a traditional mortgage involves monthly payment by the debtors, in this type, the creditors make payments to the debtors. The amount of money to be paid by the creditors depends on the value of the home of the debtor. It also allows the debtors to retain their proprietorship rights. They are required to pay the homeowners insurance as well as the property tax regularly.
2. Payment options
The retired person should also take note of the various payment options involved in this type of mortgage. The debtors can either choose a huge sum of money, a monthly payment, a line of credit or a combination of different options. Experts suggest that before getting this type of mortgage, homeowners should evaluate their financial condition and decide the ways to utilize the proceeds from it.
3. The fees involved
The initial expenses involved in this type of mortgage are closing costs, an appraisal fee, and a loan origination fee. Additionally, the lenders might charge a loan servicing fee and the borrower might have to pay premiums for mortgage insurance. It is strongly advised that the mortgagors must take help from a third-party counselor to understand the fees structure.
4. Consult family members
If a retired person is planning to leave behind his/her home to their heirs, then a reverse mortgage might not be an appropriate option. In many instances, the house is required to be sold for the payment of loans. This means that the family members will be required to provide funds to cover the loan amount. Therefore, it is better to consult family members before opting for this type of mortgage.
5. Check other available options
If a retired person has a shortage of financial resources, and no family members are interested, then a reverse mortgage might be an ideal option. Most importantly, this type of mortgage can be a suitable option only if the retired person holds a significant amount of equity in their home. However, if the retired person possesses various assets and earnings, they might find a way to use their equity in their home effectively rather than taking this type of mortgage. They might opt for refinancing their existing mortgage or downsize to a place in a retirement community or can sell their home to their children.
Apart from the above-mentioned factors, it is advisable that a retired person must consult a financial advisor to understand the options that would work best for them.