A reverse mortgage is a way that you can take out and borrow money against the value of your home, while still living in your home, without having to make mortgage payments. A reverse mortgage is paid off through the sale of your home when you are deceased if you don't choose to sell your home and settle the mortgage before that occurs. Regardless, a reverse mortgage is a financial decision that you should really understand the full implications of before you agree to one.
#1 You Will Have to Pay Closing Costs
Similar to a home mortgage, you are going to have to pay closing costs when you get a reserve mortgage. The closing costs are the fees that the lender will charge you for setting up the mortgage. Generally, you will have to pay an origination fee as well as a premium for mortgage insurance on the home. There are also generally other assorted fees that you will have to pay.
These payments are often made out of pocket, although they can be deducted from the money you are borrowing. Make sure that you understand the full amount of fees that you will be expected to pay with a reserve mortgage before going through with the transaction.
#2 Loan Balance Will Get Bigger Over Time
Since you are not required to make any payments on a reverse mortgage, the loan balance is going to increase over time due to the accumulation of interest on the mortgage. Interest on a reverse mortgage is accrued over time, which means that the balance is going to keep getting bigger as time goes on, not smaller. The balance will be paid through the sale of your home.
It is important to note that with a reserve mortgage, you can choose the type of interest you want the loan to have. You can go with either a fixed or variable interest rate, so choose the interest rate that makes the most sense to you.
#3 No Debt Is Passed onto Your Family
With a reverse mortgage, no debt from your home is passed onto your family when you die. The bank recoups the value of your home. If the value of your home has decreased, your family is not going to be expected to pay off the remaining balance. The only thing that is expected of your family is for them to remove all personal belongings from the home after you die within a set time-frame and for your family to not interfere with the sale of your home to settle your reverse mortgage.
A reverse mortgage is a way to provide you with extra income while still allowing you to live in your home. Keep in mind that a reserve mortgage balance will increase over time as interest accumulates on the loan. You will have to pay closing costs on the loan, which either come out of your pocket or out of the money you are borrowing. Your relatives will not be left with any debt when you pass away related to the loan as long as they allow the sale to go forward without interference.Share