Despite their best intentions, people often don’t have enough money saved in retirement. They were busy raising families, and let’s face it, life is expensive, with costs rising more every day. Often, many retire with only the equity in their home, which doesn’t help pay the bills or cover additional care expenses.
You can turn your equity into usable cash flow with reverse mortgages without adding a hefty monthly mortgage payment. This guide is an in-depth look at the benefits of reverse mortgages and how they work.
What is a Reverse Mortgage?
A reverse mortgage is for people who own their home unencumbered, where the owner borrows up to 55% of the home’s value (excluding accrued interest) to access cash. The mortgage rate hold stays at the agreed interest rate; however, the interest is charged daily, accumulated monthly and then added to the outstanding balance. The homeowner does not have monthly payments to worry about.
The benefits of rate holds and reverse mortgages are that they allow people with a limited income or a change in financial well-being. Terms are typically five years; you can then renegotiate your interest rate or pay off the mortgage.
Are Reverse Mortgages and HELOCs the Same?
No, reverse mortgages are not the same as home equity lines of credit (HELOC.) A HELOC is a line of credit with a minimum interest payment due every month. You can pay down the principal amount or withdraw funds without refinancing.
With a HELOC, you pay at least a monthly interest payment at a variable rate, whereas a reverse mortgage has a fixed rate hold without payments. So while a HELOC costs less in interest than a traditional or reverse mortgage, it may not benefit someone on a fixed income who can’t afford payments.
Are Reverse Mortgages Only for the Elderly?
Reverse mortgages are for anyone over 55 who owns their home free of property liens. However, you must remember that unless your home’s value doubles or triples after you get a reverse mortgage, you will only have access to 55% of your home’s value.
It means that you should only use the funds for things that help maintain or improve your quality of life in your home.
Will Reversing My Mortgage Affect My Old Age Security (OAS) Benefits?
Reverse mortgages are tax-free income and do not affect your old-age security benefits. As a result, you can rest easy and enjoy your retirement without worrying about losing access to your health benefits or pension.
Do I Have to Pay Anything if I Move Out of My Home?
Your reverse mortgage balance is due when the last surviving homeowner moves or they pass away. The home may be sold with proceeds paying out the outstanding amount, or if the beneficiaries wish to keep the house, they can payout the reverse mortgage with other funds.
Do Banks Profit From Reverse Mortgages?
Like any other mortgage, banks charge fees and interest toward the borrowed amount. Their property lien on your home guarantees repayment as the first interested party, meaning they aren’t worried about getting their money back.
Banks compensate for not getting monthly payments by charging higher interest rates than typical mortgages with a monthly repayment schedule.
Get Expert Advice From Trusted Mortgage Brokers
Whether you are getting pre-approved with a rate hold or want to enjoy your retirement comfortably with a reverse mortgage, you need a trusted advisor by your side.
At Axiom Mortgage Solutions, you will meet with qualified professionals with the knowledge to guide you through the process with honesty and quality advice. You will feel confident knowing you’ve made the best decision for your future and financial well-being.