If you're nearing retirement age like a lot of our readers are, then you too probably have a lot of questions on your mind about what plans you should be making in regards to your estate and financial security. Because retirement can cut off a large amount of income, most people worry about what will happen to their finances after they stop working. One question often rises to the forefront of everyone's mind: is there anything I can do to subsidize my income?
Aside from collecting Social Security or other retirement benefits, there is another way to subsidize your income. But this method does not come without risks, warns financial experts. We're talking about a reverse mortgage, which is something many of our Melbourne readers have probably heard of but still may know little about. In today's post, we'd like to briefly touch on what a reverse mortgage is and answer the important question: is a reverse mortgage right for you?
As the title suggests, a reverse mortgage does the exact opposite of a mortgage. The Consumer Financial Protection Bureau explains it best, "instead of making payments to the lender, you receive money from the lender." There are certain qualifications that must be met before a reverse mortgage will be granted. To qualify for this type of mortgage, you must be: 62 or older, your home has to be your primary residence, and most or all of your traditional mortgage needs to be paid off.
Reverse mortgages aren't for everyone though. Some situations that could make a reverse mortgage a bad choice are:
- Wanting to leave your home to heirs after you pass away
- If you have other options at your disposal to meet your financial needs
- If your income is fixed or too low
- Not enough money to cover homeowner's insurance and fees to obtain the loan
In some of these situations, a reverse mortgage is a bad idea because it can make repayment difficult or even impossible. In some cases, you may lose your home to foreclosure, which can complicate your carefully laid estate plan. This is not a decision that should be jumped into without first discussing it with a financial advisor or someone knowledgeable in real estate law.
Source: Consumer Financial Protection Bureau, "How do I know if a reverse mortgage is a good idea for me? What should I consider before applying?" July 2, 2014