If you’re a homeowner over 62 and in need of extra funds, perhaps it’s time to consider taking out a reverse mortgage. Unfortunately, if you aren’t a real estate or lending professional, you may not be as familiar with this practice. To help you make an educated decision about your financial future, here’s everything you need to know.
What is a Reverse Mortgage?
Sometimes, homeowners aged 62 and over may need more money to supplement their lifestyle. Most of the time, however, their biggest asset is their home. If they have no plans of moving out anytime soon, how would they be able to access these funds? That’s where reverse mortgages come into play.
These kinds of loans allow homeowners aged 62 and over, who have little to no payments left on their property, to access a percentage of the money that they would have received by selling their home. They will still own the home except they will begin receiving payments from a lender.
A homeowner will only begin to pay back the loan when they relinquish ownership of the property, which is oftentimes due to moving or death. The best part, however, is that they never owe more than the home is worth, it doesn’t matter how much debt they’ve accumulated!
Handy Reverse Mortgage Tips for Beginners
Choosing a Lender
For most homeowners, the hardest part of the process is finding the right lender. There are many qualified choices out there—but it’s always smart to choose a specialized lender that deals exclusively with reverse mortgages.
Make sure that you conduct extensive research about each lender you’re considering. If you’re having trouble finding one that you’re comfortable with, visit a professional financial advisor, as they may have some solid referrals for you. Just keep in mind that interest rates tend to vary between lenders as well.
The Financial Aspect
Fair warning for anyone thinking about taking out a reverse mortgage, there are still going to be closing costs involved. Not only that, but your balance will gradually increase over time. Since you aren’t making any payments towards the loan amount, there will be interest accumulated on your outstanding balance each month.
Taxes
When it comes to filing your taxes every year, you may think that you can just deduct your loan amount, like you would with a conventional home loan. However, your mortgage is considered a loan and not a source of income, so the IRS does not allow you to take it out of your taxes.
A reverse mortgage is the right decision for plenty of homeowners over 62 years old. Just make sure that, if you’re considering one, read up on all of the facts first!
