A reverse mortgage is a viable way to really make your house finance your golden years. After all, what’s the benefit of having a home that you’ve paid off if you are still unable to go out during retirement and engage in the activities you truly enjoy? A reverse mortgage can offer that option, allowing the discipline you showed in paying off your home work for you down the road. However, like any financial product, it is important to know everything you can learn about a reverse mortgage to ensure that you receive the benefits of having one without the drawbacks. It is a complex financial product that requires plenty of research and thought. Here are four things that you need to know before you do a reverse mortgage.
Be aware of the fees: Like any mortgage – traditional or otherwise – there are fees associated with signing up for a reverse mortgage. They don’t often crop up until you are signing on the dotted line, so ask a lender about this ahead of time. Sometimes, depending on the company in question, the fees can be so exorbitant, that it isn’t worth the hassle or the return on your investment. Shop around various providers and make sure you are dealing with a reputable firm that discloses all the fees so you don’t end up shelling out more money than you can afford.
Talk to a Counselor: The FHA lists a number of housing counselors you can contact (you can also call them for a referral at (800) 569-4287). HUD-approved counselors can help you better understand the process and can advise you on whether or not a reverse mortgage makes sense for you. The cost to speak with a counselor is usually around $125. Courtesy of the Consumer Financial Protection Bureau, here is a helpful list of questions you should ask your counselor.
Consider how you are funding your retirement: For instance, if you have multiple retirement accounts from which you can draw income, then this is not necessarily the best option for you. However, if you don’t have a great deal of retirement cash and need income for normal living expenses, then a reverse mortgage may be a viable option. Work with a financial planner to do a total assessment of your financial situation before signing up for a reverse mortgage to see if this is an option that you truly need to consider.
Plan your estate: The thing that most people really like about a reverse mortgage is that it draws from your estate when you pass on. The way the mortgage is satisfied is through the bank’s ability to sell your house once you pass away. Make sure to consider this when signing up for a reverse mortgage! If you plan to leave your home to your loved ones or want them to retain the ability to sell it for the money, then this may not be the right solution for you.
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