A reverse mortgage can be a great option for those over the age of 55 looking to receive money from the equity in their home. Rather than paying a monthly mortgage payment, owners are paid each month or as a lump sum worth up to 50% of the value of the home. Homeowners want to make sure they are not entering into a situation where they will lose their home or somehow experience loss as a result of this choice. Therefore, looking at the Reverse Mortgage Pros and Cons can help ease your mind and determine whether a reverse mortgage is the right option.
The Pros of a Reverse Mortgage
What exactly are the benefits of a reverse mortgage? The main benefit is that it allows homeowners to draw from the equity in their home and receive extra money to use for whatever they want. This money can be paid out in one lump sum, monthly payments, or a combination of the two. Homeowners are able to live in their home until death and have no obligation to pay back the debt unless they move or sell the home.
The only expectation for homeowners is that they maintain appropriate insurance for the residence and keep up with paying the taxes on it. Anyone owning a home over the age of 55 can qualify for a reverse mortgage, and there is no financial qualification to meet. The money is tax-free, and it does not impact payments the homeowner is already receiving from other sources. It is strictly extra money each month that can be used for anything.
The Cons of a Reverse Mortgage
The pros of a reverse mortgage make the deal seem pretty sweet, but it is important to recognize the cons as well. The first con of this arrangement is that if you need more than 50% of the value of your home, you will not be able to get it. Fifty percent is the maximum amount approved for a reverse mortgage in Canada. Additionally, if you owe about 50% on your mortgage or in a credit line, no money can be given in that scenario. Another con is that if the owner is planning to move out in a short period of time (less than 3 years), an interest penalty will be applied and must be paid. Finally, if the home is intended to be given to an heir at some point, that heir will be responsible for paying back the full amount upon the homeowner’s death if they wish to keep the home.
After looking into the pros and cons, it should be clear whether a reverse mortgage is a good fit for your needs. Take time to assess your situation, and make the right choice for you. Contact your mortgage holder, to find out how much money you could get for your home.
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