Reverse mortgages are frequently discussed these days, although they are not always fully understood. A reverse mortgage is a sort of mortgage loan secured against a residential property that can help retirees supplement their income by allowing them access to the property's unencumbered worth. But it doesn't tell you much, especially if you're deciding whether or not a reverse mortgage is right for you. So let's take a closer look at what a reverse mortgage is and how it works in order to give homeowners in Pasadena, Tx some sound guidance.
What Is a Reverse Mortgage?
“A reverse mortgage is a sort of loan that allows homeowners aged 62 and up who have paid off their mortgage to borrow a portion of the equity in their house as tax-free income. In contrast to a traditional mortgage, where the homeowner pays the lender, a reverse mortgage rewards the homeowner.”
Homeowners in Pasadena, Tx who choose a reverse mortgage will not have to make any monthly payments and will not have to sell their property - they will be able to stay in their home. However, the loan must be returned if one of three events occurs: 1) the borrower dies, 2) the borrower permanently leaves the home, or 3) the borrower sells the home.
As good as a reverse mortgage sounds – the most popular type of which is the federally backed Home Equity Conversion Mortgage (HCEM) – “Even if their mortgage is paid off, qualified homeowners may not be able to borrow the total value of their home. The principal limit, which is determined by the age of the youngest borrower or eligible non-borrowing spouse, current interest rates, the HECM mortgage ceiling ($822,375 in 2021), and the home's valuation, changes.” Typically, borrowers receive a higher principal limit “the older they are, the more the property is worth, and the lower the interest rate.”
Granted, all this isn’t that easy to get a handle on, so your best bet is to consult a Pasadena, Tx agent to find out more. Just call 713-766-0442.
What Are the Pros and Cons of Reverse Mortgages?
Although borrowing against home equity in the form of a reverse mortgage can provide the cash you need for, say, living expenses, the various fees involved can up to a hefty amount. So there are, then, both pros and cons to reverse mortgages . . .
Pros
- You won’t have to make monthly payments on the loan balance.
- “Proceeds can be used for living and healthcare expenses, debt repayment, and other bills.”
- “Funds can help borrowers enjoy their retirement.”
- “Non-borrowing spouses not listed on the mortgage can remain in the home after the borrower dies.”
- “Borrowers facing foreclosure can use a reverse mortgage to pay off the existing mortgage, potentially stopping the foreclosure.”
Cons
- You have to maintain the house and keep up with property taxes and homeowners insurance.
- You are forced “to borrow against the equity in your home, which could be a key source of retirement funds.”
- Fees and various other closing costs can be pretty high and so will eat into the amount of available cash.
When Is a Reverse Mortgage a Good Idea?
So when is a reverse mortgage a good idea for you as selling your house in Pasadena, Tx homeowner? Usually, it’s in one of the following cases, when . . .
Your Budget Needs a Break
“If you're 'housing wealthy but cash poor,' a reverse mortgage could be a viable option for you. This means you own your home outright (or have paid off the majority of your mortgage), but you don't have much cash flow. If you have a lot of home equity but not a lot of cash on hand, tapping into that equity may be a good way to stretch your resources.”
For those struggling to meet everyday and recurring monthly expenses, a reverse mortgage can be a boon. It could “help cover your everyday costs of living and give you some breathing room in your budget while allowing you to remain in your home.”
You Need to Make Repairs, But Don’t Have the Cash
Many retirees, after living in their homes for many years, reach a point where major home repairs are needed, but they just don’t have the needed cash on hand to fund those repairs.
A reverse mortgage can help here.
You'd have to take out a Home Equity Line of Credit (HELOC) in this situation if you didn't have a reverse mortgage - but you might not qualify for one. "You won't have to worry about conventional qualification standards with the reverse mortgage credit line alternative." And, because there are no monthly mortgage payments on the loan, you don't have to worry about things getting too tight in your budget sending monthly payments to the bank."
You Need to Preserve Retirement Assets
A reverse mortgage can also be a viable financial tool to help you preserve your retirement assets. Here’s how this would work . . .
"Many portfolios have had significant value decreases, and people are hesitant to lock in losses by selling out of those investments at a low point, eroding retirement assets." You might discover that a "reverse mortgage allows you to stay in your house without depleting your assets."
You Want to Improve Your Quality of Life
Maybe you’re not struggling, but just want cash for some of those things that will make your quality of life better – such things as travel or gifts for grandchildren.
In this case, you could use an HCEM line of credit to provide you with the quality-of-life funds you require while also preserving your "equity for family and heirs… [I]f you don't have any children or heirs, and don't have a plan for your home after you've passed, then a reverse mortgage could simply be used to improve the quality of your life in your retirement years."
Where Can You Get Some Assistance?
Choosing whether or not to take out a reverse mortgage is a large and personal choice. A knowledgeable Pasadena, Tx agent, on the other hand, can provide you with invaluable guidance. If you're thinking about getting a reverse mortgage, give us a call at 713-766-0442.
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