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This story is sponsored by FSI Mortgage. Learn more about FSI Mortgage.
Mortgages, in general, are highly complicated and often misunderstood by the public. Still, that doesn’t mean that the word “mortgage” needs to put you on edge, particularly if you’re looking into the post-retirement benefits of a reverse mortgage.
What is a reverse mortgage, exactly? Instead of making monthly payments toward a mortgage loan, the borrower receives payment from the lender. Typically, those possessing a reverse mortgage tend to be relieved of monthly payments and continue to collect their Social Security and other retirement incomes. This strategy allows countless people to enjoy a financially stable retirement.
The important thing to realize is that a reverse mortgage allows many retirement-aged individuals to live in comfort simply by using their home’s equity or value to live off of. Significantly, when a reverse mortgage comes due (either by death of the borrower or selling of the home involved), the mortgage payment is due in full.
To find out more about reverse mortgages, FSI Mortgage has put together a pros and cons list to consider. And, if you want to know the reverse mortgage basics, please visit our website at www.fsimortgage.net and click on the reverse mortgage tab.
Pros:
1. Allows for a stable retirement
Due to the economy and other financial concerns, more and more Americans are becoming worried about their ability to live a comfortable retirement. Regardless of whether you have the current finances to support retirement, a reverse mortgage offers a reliable and lasting source of income.
2. Makes use of your greatest asset
People can benefit from a reverse mortgage by using their home’s value to supplement their retirement income. Svenja Gudell, a senior economist at Zillow, stated that "(retirees) are the people with the greatest flexibility" since recent findings show that nearly one-third of Americans no longer have a mortgage payment. As many retirees wish to stay in their homes and have already paid off their homes, the homes themselves become the perfect source of financial stability.
3. Helps maintain freedom and independence
No one wants to ask their adult children for money, particularly if you’re trying to enjoy retirement. Getting a reverse mortgage uses your age, current interest rates, and your home’s value to provide a consistent and reliable monthly income so you can continue enjoying your freedom and home for years to come.
4. Eliminates debt and financial stress
When you have a sizeable monthly income from a reverse mortgage, you can enjoy your retirement with peace of mind. What’s more, interest rates tend to be lower in reverse mortgages, and there’s a wealth of flexibility should you make changes in the future. Last but not least, a reverse mortgage is a great way to receive tax-free income each month. Ask your mortgage advisor about reverse mortgage tax benefits.
5. Lower mortgage fees overall
No application fees are charged on a reverse mortgage. The FHA requires an origination fee, but this fee is capped at $6,000 unlike with a normal mortgage. This is just one example of many fees that tend to be lower or avoided altogether in a reverse mortgage, which is always good news.
Cons:
1. Uses your home’s value
Unless you decide you no longer need the loan and pay it off in full, your estate will ultimately inherit less money as a result of the reverse mortgage. This is because your death will cause the reverse mortgage payment to come due, which requires selling the home or obtaining alternative funding to pay off the loan in full. Selling the home typically covers the payment successfully, unless of course there is a dependent child wishing to remain in the home.
Regardless of your dependents, people wishing to keep a home under any circumstances must pay property taxes, HOA/PUD fees, and homeowners insurance. So leaving your child a paid off home after your death isn’t necessarily beneficial in the first place.
Retirement can span many years, so it’s good to have an income source you can rely on in the future. Talk with your family members and a trusted reverse mortgage expert to help you come to a decision that’s right for you.