A reverse mortgage isn’t for every homeowner, and you should never enter into one without doing some research on the process or the bank offering it. But there are also a lot of misconceptions out there about what you can and can’t do with a reverse mortgage.
Here are just a few things you might not realize about how reverse mortgages work.
You Own Your Home
The common thought is that the lender owns your home once the mortgage closes. In reality, you retain the title and ownership of your home during the life of the loan. You can also sell at any time. Like every other mortgage, the bank would be paid back from the proceeds of the sale. As long as you meet the loan obligations described in the terms of your mortgage, the loan will not come due. Make sure you know and understand those obligations before you close.
You Can Have a Mortgage When You Apply
Some people actually use the reverse mortgage to pay off their existing mortgage. This helps them get rid of the mortgage payment right as they might need the financial help the most. It can be a good financial strategy if you’re entering retirement or anticipate rising costs where your money can be better spent.
Affluent Owners Use Reverse Mortgages Too
Many people think of reverse mortgages as something poor homeowners need. While it can eliminate a costly payment for people, some wealthier owners are using reverse mortgages, too. In their case, it’s often part of an overall financial strategy to help grow their current wealth.
Your Children Can Keep Your Home
Many people believe that their home will be immediately taken once they die, leaving their children with nothing. That’s not automatically true. Yes, the bank can keep the home but your kids do have an option. If the loan balance is higher than the worth of the home when you die, your children will only have to pay 95 percent of the appraised value in order to keep it. It’s important that you talk to your children once you have the reverse mortgage so they know what they need to do after you die.
Reverse mortgages aren’t something to be done lightly, and it’s important to talk to a lender about the process and the requirements. If it’s what you need as you age to eliminate a mortgage payment, it could be the right step for you. Talk to a variety of lenders and shop around before committing to a reverse mortgage to make sure you’re armed with facts and are getting the best deal possible.
Source: Reverse Mortgages: Myths vs. Reality, Florida Realtors
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