A reverse mortgage, what is it, you ask? A reverse mortgage is a mortgage you can take out against your home, allowing you to borrow up to 55% of the property’s current market value. To qualify for a reverse mortgage, you must be at least 55 years old and a homeowner. Everyone living in the home also must be at least 55 years or older. The Covid-19 pandemic has made ageing adults hesitant to move into retirement homes or long-term care. Many seniors are struggling financially, which has led to an increased interest in reverse mortgages.
Interesting, but how does the reverse mortgage work? Once approved, the repayment operates a little differently from a traditional mortgage. You do not have to pay monthly to repay the loan. Repayment of the mortgage is typically made during the sale of the house, if the owner defaults on the loan terms, or when the last borrower dies.
When a borrower applies for a reverse mortgage, the lenders must consider how much one can borrow. In addition to meeting basic qualifications, four things will be considered; where the house is located, the home’s condition, the type of home, and the appraisal value. The property you use for the reverse mortgage must be your primary residence, meaning you must be living in this home for a minimum of six months out of the year.
There are a few costs that one should keep in mind when planning for a reverse mortgage. A reverse mortgage has a higher interest rate than your conventional mortgage, so your accrued interest will be greater. As per most mortgages, the borrower will be asked to pay for their home appraisal fee and legal fees for closing costs. Another financial consideration is that the administrative costs will be higher than with a traditional mortgage. You may also want to remember that you will have much less left in equity when you decide to sell your home. Something else to consider with a reverse mortgage is that you can only borrow 55% of the home’s value. Most people won’t think of the additional funds they will require to pay off their current mortgage if they have one, and all loans secured by the property must be paid off.
This sort of mortgage is appealing to older people because they are short on cash. A reverse mortgage would open cash flow and allow them to pay bills without worrying about paying the mortgage. There will be peace of mind knowing they won’t have to repay the mortgage until they sell the house or pass away.
For information on how to apply for a reverse mortgage, feel free to reach out to us. We can help you to get all your mortgage-related inquiries answered. You can reach us at 905.997.7001 or email us at firstname.lastname@example.org.