If seniors are in the right situation, a reverse mortgage or Home Equity Conversion Mortgage (HECM) can help them increase their spending power and retirement financial security. There are many reasons why seniors should take advantage of the benefits offered by this type of mortgage. These include the following:
Qualifying for the Loan is Not Only about their Income or Credit Rating
A reverse mortgage has limited income and credit score requirements. They just have to prove that they can continue to pay taxes and insurance on their home.
They can Use the Mortgage for Various Reasons
A reverse mortgage is a flexible product that borrowers can use in various ways. For instance, they can tailor the mortgage to have enough finances for their routine and daily expenses or use it as a financial planning tool.
The way borrowers can use their mortgage funds is up to them. They can travel, buy long-term care insurance, purchase essential equipment like mobility aids, for the college fees of their kids or to have something to use for unexpected expenses.
A Default is Less Likely
Compared to a home equity loan, a reverse mortgage doesn’t include taking a borrower’s home for their failure to pay. Borrowers don’t make any payments on the loan until they leave their home permanently. But, they should continue to pay for maintenance, insurance and taxes on the house.
Home Values will Never Be an Issue
With a reverse mortgage, borrowers will not owe more than the value of the house at the time they pay off the loan. This is true even if the mortgage provider has given them more than their home’s value. Such benefit is a good thing for borrowers who took on the loan and the price of their home drops.
Borrowers can Get the Funds in Various Forms
Depending on the kind of loan taken out, borrowers can get the reverse mortgage funds in the form of a lump sum, credit line, monthly payments or a combination of these.
Seniors Don’t Lose their Assets
Depending on a senior’s situation, a reverse mortgage might help them in preserving their assets. A number of financial planners who give reverse mortgage advice recommend this mortgage for preserving and increasing home equity value. Taking the loan as a home equity line of credit leaves the mortgage growing every year, locking in the current home value of the borrower. Over time, the line of credit is likely to be bigger than future real estate values in case the market goes down.