Reverse mortgages are loans given to elderly homeowners (62 and above). Although these homeowners should have sufficient home equity and are able to take a loan against their home value. Reverse mortgages can be availed at a go as a lump sum, or a line of credit, and even as a fixed monthly payment. Homeowners do not need to make any loan payments while availing reverse mortgages. In fact, the loan is payable only after the passing away of the borrower or in a situation when the borrower sells his home or moves away for good. Though reverse mortgages have been available for many years, people do have some skepticism before taking up such loans. So let us take you through the do’s and don’ts of taking a reverse mortgage to make things clear.
Do’s of Reverse Mortgage
Seek guidance: First up, speak to someone you trust like a friend or someone in the family and discuss your plans with them about taking up a reverse mortgage. Such people are close to you, know your financial condition, and would be able to guide you about your decision.
Calculate the data: Input your details in a reverse mortgage calculator. Such calculators are easily available online for free and will help you calculate the data in a matter of minutes. The data you obtain will tell you the amount of reverse mortgage you are eligible for.
Sort financial obligations: Before taking up a reverse mortgage ensure payment of home insurance, taxes related to property, lien with your property. Likewise, any other financial obligations should be dealt with on time.
Condition of the house: The house should be kept in good condition so that you don't need to spend the sum you get a reverse mortgage towards any maintenance work for the house.
And finally, it is strongly advisable to keep aside a part of the reverse mortgage received for unforeseen circumstances such as medical emergencies, natural calamities, or any other emergency.
Don’ts of a reverse mortgage: What not to do
While the benefits of taking up a reverse mortgage are plenty, there are also some disadvantages that one must know about before signing on the dotted line.
Not a short term solution: If you are planning to take a reverse mortgage it is advisable to not opt for it as a solution for a short-term requirement. For example for relocation to another home or for small money such as repairs of the home, taking a reverse mortgage is not recommended by experts. This is so because on default of other loans, the reverse mortgage becomes due too.
Excess is never good: If taking up a reverse mortgage, do not go overboard and take out excess money from the house. If you do so you will also be losing a considerable chunk of your equity in your own home. This also means the list of your assets will go down and your heirs will inherit less from you.
If you are looking to take up a reverse mortgage and are unsure about its pros and cons, we will be happy to assist and tell you what is advisable given the situation you are in.