We are living in troubling times – both personally and financially. Many people have lost their livelihoods due to the pandemic, and even with the many stimulus checks – it’s not enough.

Now, some people can’t find a job, or they can’t have a steady income that can support their lives. Until the situation blows over completely, all a lot of people can do is sit and wait – and that’s not the end of it. Commuter towns keep growing, prices keep rising, and money is worth less and less.

Prices have begun skyrocketing in the background, the dollar’s purchasing power is plummeting, and lumber is up 600%, so what do you do? Well, getting a reverse mortgage may or may not be a good idea – let’s find out.

What Is a Reverse Mortgage, Exactly?

A reverse mortgage is essentially a mortgage loan – the loan is issued by a loaning institution or by the bank, with some property as collateral and security. However, unlike a traditional mortgage loan, a reverse mortgage gives you complete access to the unencumbered value of the property.

Most eligible people for a reverse mortgage are over 62 years of age, as these types of loans are usually issued to either pensioners or people just about to retire.

This type of loan takes a part of your equity and pays out a predetermined amount of money that the specific equity is estimated to be worth.

Unlike a traditional mortgage, you don’t have to sell anything or even pay monthly mortgage bills.

How Does It Work?

Think of a reverse mortgage just as a loan, like any other but without the requirement of making monthly mortgage payments. Instead of paying the bank back monthly, you pay back the loan when your home is eventually sold. Any remaining equity in your house transfers to your heirs but if the home ends upside down you can rest assure you aren’t passing debt to your children as reverse mortgages are non-recourse loans.

Are There Any Requirements?

The requirements for a reverse mortgage will depend on a lot of things. The first thing that will impact the requirements is the agency you’re getting the mortgage from; the second is your state.

In general, yes. In most cases, reverse mortgages aren’t given to people who are under 62 years of age. Furthermore, the home you’re getting your reverse mortgage on must be your primary residence. Most reverse mortgages will require you to either own the home you’re putting up or have a very low mortgage balance.

If you’re trying to get approved for a reverse mortgage loan, you mustn’t have any federal debt, and other debt might decrease your chances of getting approval. The home you’re putting up for mortgage will have to be in good shape, which means that you will have to maintain it constantly and keep it up to the required property standards.

To find out if you’re eligible for such a thing, you will have to receive professional reverse mortgage counseling from a HUD-approved agency.

Is It a Good Idea to Get a Reverse Mortgage?

Yes and no. Depending on who you are, your current financial situation, and whether you’re looking for a long-term or short-term deal, a reverse mortgage might be a match made in heaven or the biggest financial mistake of your life.

Before you get any mortgage or loan, we strongly advise you to seek professional counseling to find whether this is the right type of thing for you.

Are There Any Alternatives?

Yes. If you’re looking for some money and are financially able, you should be able to get a traditional loan, open up a second mortgage, or even get financial aid if you’re really in a pickle. There are always alternatives, but the alternatives are always going to depend on your unique capabilities.

A good idea would be to consult financing professionally and explore your options before you.

The Benefits and Drawbacks of a Reverse Mortgage

Like with any loan, there will be a few benefits and a couple of downsides. Below, we’ll outline some of the most prominent pros and cons of a reverse mortgage.

Pros:

â—        Tax-free loan

â—        No monthly payments

â—        It doesn’t affect medicare

â—        It doesn’t affect social security

Cons:

â—        Risking repossession

â—        Rising debt

â—        Risk of beneficiaries inheriting loan

In Conclusion

In essence, a reverse mortgage might be an outstanding loan option as long as you can pay your dues. The tax-free aspect of it makes these loans very appealing, but the relatively stiff requirements mean many people aren’t eligible for this type of loan.

We always encourage you to do your own research before you go for any loan, as it is the best way to ensure you’re getting the best deal possible.