Is a Reverse Mortgage Right for You?

Are you retired and looking for a way to get access to more money? You might want to consider taking out a reverse mortgage. This loan instrument allows those over 55 years of age to take money directly from their home equity to use as they like. It has benefited many retirees in the past, but is it right for you? Find out the pros and cons of a reverse mortgage right here.

PROS

No Regular Loan Payments

If you need a little extra to help with your expenses or to pay for long-term care insurance, you can get the money you need without having to worry about monthly payments. Unlike other loan instruments, you can borrow up to a certain percentage of the current value without having to make any payments until you move out, sell it or until the last borrower passes away.

Tax-Free

Another positive note for arranging a reverse mortgage is that you don’t have to pay any tax on the money that you borrow. This is highly beneficial to those who receive government income since the money won’t affect your Old-Age Security (OAS) or your Guaranteed Income Supplement (GIS) benefits.

Flexible Options

Depending on your lender, you may also have options for how you receive the money. For instance, instead of taking the money out as one lump sum, you may be able to borrow some of the cash up front and the remainder over time.

Maintain Home Ownership

With a reverse mortgage, you still retain ownership of your home. In fact, the amount you owe will never exceed the value of your property, so you don’t have to worry about losing your home or leaving beneficiaries in financial trouble.

Fill in the Gaps in Your Finances

If you rely heavily on your investments for your retirement income, you can use the reverse mortgage to fill in the holes when the market downturns. This method shifts wealth from your home to your investments – a risk that can provide quality returns if done right.

CONS

Interest is Charged Until Repayment

Not only are interest rates higher than most other loans, but the interest will also be added to the original loan amount until the loan is paid off in full. Even in the short-term, the interest can rapidly accumulate and raise the amount of the loan.

Less Equity in Your Home

The longer you wait to make payments, the less equity you will have in your home. This could result in less money available to pass onto your beneficiaries.

Must Repay in Full

Upon death, the beneficiaries would need to pay back the entire loan. This happens whether or not they plan to occupy the property. So, if they don’t have the money to pay the loan out of pocket, they would likely have to sell. Not sure if a reverse mortgage is right for you? Let us help! At the Mortgage Advisors, we’ll carefully evaluate your financial goals, home value, and other finances to help you decide what loan instrument is the best one for you.