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Reverse Mortgage – Benefit/Pros and Cons

For seniors who don't want to be responsible for monthly loan payments or can't qualify for a home equity loan or refinance due to limited cash flow or poor credit, a reverse mortgage is the only way to access home equity without selling their house.

A reverse mortgage loans California may resemble a home equity loan or line of credit. Like one of these loans, a reverse mortgage can give a lump sum or a line of credit that you can use as needed based on how much of your home you've paid down and the market worth of your home. You don't need an income or strong credit to qualify, and you won't have to make any loan payments while you live in the house as your primary residence, unlike a home equity loan or line of credit.

What choices do you have for using home equity to support your retirement if you don't qualify for any of these loans? You could sell and downsize, or you could sell your home to your children or grandchildren to keep it in the family, or you could rent it from them if you wish to stay in the house.

Pros and Cons

Pros

When you're 62 or older, and your home equity is your best asset, and you don't have another method to pay your essential living expenditures, a reverse mortgage can be a viable way to borrow cash. You can stay living in your house with a reverse mortgage as long as you pay your property taxes, upkeep, and insurance on time and don't need to move into a nursing home or assisted living facility for more than a year.

·         The borrower is not required to make monthly payments against the principal portion of their loan.

·         The money raised can cover living and healthcare costs, debt repayment, and other expenses.

·         Borrowers may be able to use funds to assist them to enjoy their retirement.

·         After the borrower dies, non-borrowing spouses who are not included on the mortgage can stay in the house.

·         Borrowers facing foreclosure may be able to use a reverse mortgage to pay down their current mortgage, thereby preventing foreclosure.

Cons

Taking up a reverse mortgage, on the other hand, requires you to spend a considerable portion of the equity you've built up on interest and loan costs, which we'll go over in more detail below. It also implies you won't be able to pass your home down to your children or grandchildren. It may not be worth the price if a reverse mortgage does not provide a long-term answer to your financial troubles but merely a short-term one.

Another issue with reverse mortgages is that some borrowers outlive the loan proceeds. You might not have any money left when you picked up a payment plan that does not deliver lifetime earnings, such as a lump sum or term plan or take up and use a line of credit.

·         The borrower is responsible for keeping the house in good repair and paying property taxes and homeowners insurance.

·         A reverse mortgage requires you to borrow against your home's equity, which could be a valuable source of retirement funds.

·         Fees and other closing charges can be expensive, reducing the amount of cash available.