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Funding your retirement can be a real challenge for many Americans. Everyone is eager to retire, to enjoy traveling, to practice some hobbies, and to spend time with family and friends while still relatively young and in good health. Unfortunately, paying for your retirement is not always easy and affordable. Since the 1960s, some older people have been able to turn to reverse mortgages as a way to take advantage of their home's equity. In recent years and harder economic times, the loans have become increasingly popular.
What
is a reverse mortgage?
Like home equity loans and lines of credit, a reverse mortgage allows
homeowners to draw upon the equity accrued in their property.
You will receive payments calculated to be a percentage of the equity
in your home. In this sense, you are actually getting paid to
live in your house, townhouse, or condo. When you sell or
otherwise cease to occupy the property, the bank will recoup its
money. It almost sounds too good to be true – a
home equity loan that does not need to be paid back in your lifetime.
Is
it right for you?
There are some rules and conditions that apply before you can determine
whether or not a reverse mortgage is a good option for you.
You should be:
- Free from debt:
You can only obtain one of these home loans if there are no other
outstanding liens on your property. You should own your home
outright or be prepared to have other loans taken over by the lender
who is financing your reverse mortgage.
- Planning to stay
put: If you move
out of your dwelling, you will be required to pay the loan
back. In many cases, this means you will be left with nothing
for a down payment and will not be earning anything on the
sale. You should not be planning to move again.
- The older the better:
The older you are, the more money you will be able to collect on a
reverse mortgage. Conversely, the younger you are, the less
worthwhile a loan like this will be.
What
are the options?
When some people think of reverse mortgages, they think of the
homeowner getting paid a monthly sum while living in his or her
house. However, it is also possible to get a lump sum
payment, a line of credit, monthly cash advances, or a combination of
these. The sort of loan you accept will depend on your
individual needs and requirements.
What
do I need to know?
Of course, you need to know what sort of payments you will receive, as
well as how your interest will be structured. You can choose
an adjustable rate that fluctuates at various intervals, or a flat rate
that remains stable. You also need to realize that the longer
you have the loan, the less equity will remain in your
property. This means that, if you were counting on willing
the proceeds from your house to any heirs, they may be left with almost
nothing.
Despite these warnings, reverse mortgages can still be great options
for retirees who need cash. Do your research, check with
trusted financial advisors, and read all the disclosure documents
before signing anything. Investing your time now will make
for a better investment in your future.
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