A reserve mortgage is a form of mortgage you can use when you are a certain age, and you have equity in your home. A reserve mortgage allows you to tap into the equity in your home. Before you apply for this type of mortgage though, you need to make sure that you really understand how the process works and how it will impact your life.
#1 You Have to Have Equity in Your Home
In order to get a reverse mortgage, you have to have equity in your home. If you don't have that much equity, your chance of getting a reverse mortgage, or a reverse mortgage being that useful, are really low.
In essence, this type of mortgage allows you to borrow against the equity that you have in your home. This type of loan allows you to basically use your home as collateral.
#2 You Have to Pay Back the Loan
With a reverse mortgage, it is important to keep in mind that you do have to pay the loan back eventually. It is not free money. What happens it that the loan has to be paid back, in full, either when you sell the home and move elsewhere, or when you die and your home is sold to settle your estate. Either way, you will eventually have to pay back the loan.
That means if you decide to sell your home because you want to move into a retirement community or need to move into a nursing home, for example, you will have to settle the loan at that time. If you die while still living in the home, then your heirs will either need to sell your home to settle the reverse mortgage, or they will have to pay off the reverse mortgage.
#3 Reverse Mortgages Are Not Free
Just like a normal mortgage, there are costs associated with a reverse mortgage. You will have to pay a variety of fees in order to establish the mortgage. Just like a regular mortgage, be prepared to pay an origination fee, closing costs, servicing fees, a mortgage insurance premium, and interest rates. You can roll the cost into the loan, but that will make the cost of eventually repaying the loan higher.
#4 Have to Keep Your House Up
With a reverse mortgage, you have to make sure that you keep your home in good shape and stay on top of taking care of the other financial responsibilities associated with your home. For example, you will be required to pay your property taxes if you have a mortgage. You will also need to make sure you maintain a homeowner's insurance policy. On top of all that, you need to keep the home in good shape.
A reverse mortgage can be a great way to tap into the equity of your home. Just remember, it is not free money. You will have to pay regular mortgage fees and you will be expected to pay your property and homeowner's insurance, and keep up with maintenance on your home. Eventually, either you or your estate will have to settle your mortgage.
Talk to a mortgage consultant today to figure out if a reverse mortgage is right for your financial future.