Many seniors are strapped for cash these days. Social Security payments are struggling to keep up with inflation. As a result, more seniors are struggling with debt than ever.
There are a lot of things that you can do to improve your financial situation in retirement. One of the things that you should consider is getting a reverse mortgage.
Reverse mortgages have become more popular than ever. The market size for reverse mortgages will be worth $4.9 billion in 2021. This figure will continue to increase as more seniors decide it is worth the tradeoffs.
Is a reverse mortgage the right option for you? You can get a better idea if you learn how a reverse mortgage works. Here are some instances when it might make perfect sense.
You have a valuable home in an area with low property taxes.
A reverse mortgage might be a great deal if you have a home that is worth a lot of money. You can get a much higher loan if you have a lot more equity in the property.
However, you are going to have to consider the long-term costs associated with living in your home. A more valuable home will be more costly to keep even if it has already been paid off. You are going to have to keep paying property taxes and insurance premiums.
Of course, the most significant factor in determining your property taxes is the value of the property. However, the local property tax rate is also a considerable factor. You’re going to have to pay higher property taxes in some states than others. For example, the effective property tax rate is over 2% each year in Connecticut, New Hampshire, Illinois, and New Jersey. If you live in one of those states, you might want to consider selling your home and moving to an area with lower property taxes.
On the other hand, if your property taxes are going to be relatively low, then you might feel it is better to take out a reverse mortgage. You will be able to continue living in your home without paying an arm and a leg while still benefiting from your equity.
You intend to stay in your area to be near your family and friends.
There are some stipulations that you have to follow when you are taking out a reverse mortgage. One of the standard requirements is that you will have to stay in your home as your primary residence. If you ever sell your home, you will have to pay back the reverse mortgage loan in its entirety.
There are some instances when this could be a dealbreaker. However, if you plan on living in your home indefinitely, then a reverse mortgage probably makes perfect sense.
One of the biggest reasons seniors choose to stay in their home is that they plan to stay near their kids, other family and friends. If you’re planning on staying in the area anyways, then a reverse mortgage might be a great idea. You can’t really sell your property to buy a new one in the same area because you will have to pay a similar price for your new home. You might as well take out a reverse mortgage instead.
Your kids are not expecting a large inheritance.
You don’t have to repay your reverse mortgage while you are alive, as long as you don’t sell your home and continue paying your property taxes and insurance. As the person taking out the reverse mortgage, this can seem like a win-win scenario.
However, there is still a cost associated with a reverse mortgage. The fact that you don’t have to pay that back while you were alive doesn’t change the fact that it needs to be repaid.
The market share will usually take the proceeds of the loan out of the property after you pass away. If you don’t have any heirs that will pay back the mortgage, then the lender will close on it after you die. If you do have kids or other heirs that will inherit the property, then one of two things are going to happen:
- The property will be sold, and your heirs will get cash proceeds after the reverse mortgage, remaining property taxes, and other debts are paid off.
- Your kids will have to pay the balance on the mortgage before they can inherit the property.
You need to make sure that your heirs are aware of the reverse mortgage. They need to be prepared to repay the loan after you pass away.