The purpose of retirement is supposed to be to have time to stop and smell the roses. If you have big plans for your retirement like travel, you might need money to enjoy all that free time. Unexpected expenses like doctor’s bills or repairs to your home can also cause retirement stress. If you find yourself needing funds for any reason, you might be sitting inside the money that you need, your home. A reverse mortgage can allow you to take some cash from your home value. Here are some pros and cons of the process.
Pro: You Have Less Eviction Risk
One of the basic requirements of a reverse mortgage is the home has to remain your main residence throughout the time the loan is active. You choose how long the loan stays active because it is not called in unless you move out or otherwise violate the loan agreement. Since there are no set dates on which you have to make payments, you also cannot be evicted for failure to pay a scheduled bill. That is quite different from a standard mortgage agreement. With a standard agreement, you must make payments by certain dates and can be evicted for failure to pay.
Con: You and Your Home Are Tethered
If you get a reverse mortgage, you and your home are essentially tethered. You can go on short trips, but you cannot move away. Among the many pro and con reverse-mortgage considerations is also the fact you still own the home. Therefore, you must over the costs of any repairs or maintenance to it for as long as the loan lasts. That includes paying taxes. For that reason, you must typically pass a credit check before getting a reverse mortgage.
Pro: You Can Repay the Loan Whenever You Want
One of biggest upsides of a reverse mortgage is you are under no obligation to pay it back by a specific date. In fact, while a traditional loan often lasts no more than five years, a reverse mortgage often lasts a decade or longer. That freedom to repay on your own schedule can allow you to financially relax during retirement and do all of the things you want to do.
Con: You Have to Pay Certain Reverse Mortgage Fees
A reverse mortgage comes with similar fees to a traditional mortgage. Those fees are typically deducted up front from the total funds you can receive. They include closing costs. Fees to pay off a traditional mortgage you already have must also be deducted right away.
Another fee you have to worry about with a reverse mortgage is interest. It is accumulated just as it would be with a traditional mortgage. The difference is there is an extended period of time involved. Therefore, the total interest you pay in the long run can be much higher than traditional mortgage interest. That might not be a consideration right now, but it can become a problem later, if you are unprepared.
Weighing All the Pros and Cons Together
There are a lot of pros and cons to consider when getting a reverse mortgage. This is only a handful. It is important to weigh all the pros and cons together before deciding if it is the right type of home loan for you. If you are confused or unsure about any aspects of reverse mortgage application, talk to a counselor who specializes in reverse mortgages. He or she can advise you about each aspect of the process. That way you can be fully prepared before a reverse mortgage contract is ever signed.
