If your age is 62 or more and if you have already built up substantial equity in your home, then one option available before you is to take out a reverse mortgage loan. Unlike other mortgage loans, here you don’t have to make payments. Instead, payments are made to you on a monthly or lump sum basis but your equity gets reduced. One important feature of this loan is that the money that you receive is tax-free. There are some discernible advantages of this loan as the money that you receive can be used for whatever purposes you want. Importantly, this mortgage offer provides you the chance to lead a better life after retirement. However, there are also some cases when a reverse mortgage loan is a bad idea for you.
1. Don’t take out this loan just because you’re a senior
Just because of the fact that you are a senior, you should not plunge into taking out a reverse mortgage loan. If you don’t have any requirement for immediate money, you should not rush into taking out a reverse mortgage loan. Though the rate of interest associated with this loan is low but the loan is no way obtainable at free of cost. If you have other options such as the savings accounts or the certificate of deposits (CDs), then you should explore those options first.
2. If your spouse is not on the loan title
In case of a reverse mortgage loan, the loan has to be repaid in case the last person on the loan passes away or moves to a new place permanently. So in the event you pass away before your spouse and your spouse is not on the title, then the loan has to be repaid even if your spouse may still be living in the house. So, if your spouse’s name is not on the title of the loan, you must take immediate initiatives to add your spouse’s name on the title of the loan.
3. Don’t use reverse mortgage proceeds in risky investments
You may be encouraged to invest the reverse mortgage proceeds in equities, real estate, start-up companies etc. However, investing in these options such as equities, real estate or start-up companies entails some risks. Since you are above 62 years of age, you should be very much conservative regarding your money matters. Your house is perhaps your biggest asset, you should not risk it.
4. Don’t take this loan to meet short term goals
You should not take out a reverse mortgage loan for meeting short term financial objectives. In other words, you should not risk your home for meeting immediate objectives.
5. Closing costs are high for low-priced home
If you take out a reverse mortgage loan, you have to pay some closing costs. Closing costs include the loan origination fees, appraisal cots, notary charges etc. For low-priced house, in percentage terms, the closing costs are higher than the high-priced house. If you are taking out a reverse mortgage loan on a comparatively low-priced house, you should take into consideration the percentage of closing costs too.