3 Reasons to Consider a Reverse Mortgage

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A reverse mortgage is a fantastic opportunity for older homeowners to extract cash from the equity in their homes, and there are many reasons for doing so. A reverse mortgage should be carefully considered though. Deciding whether this financial decision is the right one for you and your family requires a lot of planning and consideration ahead of time. Here are some things to think about if you’re wondering if a reverse mortgage may be right for you.

What is a reverse mortgage?

A reverse mortgage is a vehicle for taking cash out of the value of your home. It’s a loan that is paid either overtime or in a lump sum based on your home’s equity — that is, the value of your owned portion of the home. A traditional mortgage is a loan used to pay for a home that you pay back in monthly installments, therefore building equity, or ownership, in the asset. Older Americans typically own their homes outright or are the larger of two stakeholders in the property as a result of years of repayment history. By taking out a reverse mortgage you put up that slice of ownership in return for a cash infusion that is not payable until you leave the home, for a variety of reasons including the sale, a move, or death.

This, however, comes with a cost. Depending on the structure of terms, you could be left with no ownership stake left in the property, meaning you will have to buy it back all over again or leave the bill to your heirs — adding financial stress to the other types of grief they may be battling. You don’t want your bereaved loved ones to have to deal with financial stress as they go through the stages of grief associated with the grief process. They should be able to reach out to a grief counselor and work through the complicated grief they may be experiencing, not thinking about a reverse mortgage and the leftover resultant bill. Considering the grief process of your bereaved loved ones is one of many reasons to consider your options when approaching a reverse mortgage.

How do home improvements factor in?

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A reverse mortgage is a great way to gain access to your property’s cash value in order to build on an extension or remodel the home in an effort to increase its value. Reverse mortgages in California, Texas, or Florida could also be taken on in order to revamp your home and add solar power to your home’s facilities, lowering your electricity bill over the long term. Home improvements with this type of equity loan can be a great option if you intend to transfer ownership to your child so that he or she can raise their own family in the property. Creating these lifestyle upgrades can make your quality of life better and then pass on the upgrade to your heir.

Use a reverse mortgage to pay off your existing loan.

A reverse mortgage could be the perfect way to tap your equity at a low rate in order to eliminate the last bits of your current mortgage. Rates are often competitive, so a cash infusion from your home’s equity may give you a new line of credit at a much better rate that allows you to save some and pay down your remaining higher interest balance.

Take a vacation.

Finally, using a reverse mortgage to treat yourself is a great way to make your home’s equity work for you. You’ve worked hard all your life, so taking the time to treat yourself to that dream vacation is something that many new retirees use their equity potential to fund. Mortgage terms can be structured in a variety of different ways, so you can take out a smaller amount and often repay the borrowed capital to return your ownership to its previous status. Taking the time to treat yourself from the spoils of your lifetime of earnings and asset collection is a great use of home equity loans.

No matter your interest in your home’s equity, it’s there for you to use. You should always consider all your options before taking out a reverse mortgage on your home, but you may just find that this is the perfect opportunity to add tremendous value to your life without much difficulty.

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