Pluses and Minuses of Reverse Mortgage Application

If you are wondering if a special retirement loan can help you, it might. Known as a reverse mortgage, it is a mortgage unlike a traditional home loan. Traditionally, you receive a short-term mortgage that needs to be repaid in incremental amounts. A reverse mortgage is designed to provide a more long-lasting solution to financial concerns during retirement. Before you fill out an application, here are some pluses and minuses to think about.

Receiving Money Instead of Paying It

One of the biggest pluses of a reverse mortgage is receiving money instead of paying it, at least for a while. You do not owe any of what you borrow back right away. You can choose when to repay the long-term loan, as long as you continue living on the property attached to the loan. When you move, the balance is owed.

Lower Risk of Defaulting with a Reverse Mortgage

Another reason you may prefer a reverse mortgage over a traditional loan is the risk of defaulting on it is much lower. A traditional loan puts you at risk of being evicted from your home when you miss scheduled payments. Reverse mortgage payments are not scheduled. Therefore, you cannot miss any.

But Defaulting on a Reverse Mortgage is Still Possible

Of course, it is still possible to default on a reverse mortgage, but in other ways. For example, you cannot file for bankruptcy and maintain a reverse mortgage. You also have to continue to pay taxes and meet all other obligations of home ownership to maintain the loan agreement. You stay the owner of the home for the duration of the loan and are still obligated to act as such.

A Reverse Mortgage Obligates You to Stay in Your Home

One of the biggest minuses of a reverse mortgage is you can only take it out on your primary home. That is the home you live in on a full-time basis. The fact you are obligated to stay in that home for as long as you want the loan to last is a downside of a reverse mortgage. You may still take vacations, of course. However, you cannot switch your primary residence until you are prepared to pay back your loan balance.

You Can Access Reverse Mortgage Money in Many Ways

Another plus side of a reverse mortgage is you can access your money in many ways. However, you do have to select your cash receipt preference when you establish the initial loan agreement. One option is to ask for one large payment. Another is to draw from your available home equity on an as-needed basis through a home equity line of credit. A third popular option is to receive monthly installments. If you choose that option, those installments will arrive regularly until available funds are depleted.

You Cannot Have a Traditional Loan and a Reverse Mortgage

If you already have a traditional mortgage, another downside to be aware of before applying for a reverse mortgage is you cannot have both at the same time. However, you can initiate the reverse mortgage while the traditional loan is active. Then you must use a chunk of the reverse mortgage funds you receive to pay the traditional loan balance right away.

The Bottom Line on Reverse Mortgages

The bottom line on reverse mortgages is one might be right for you, if you intend to stay in your home for a long time. It can provide you with plenty of financial flexibility. That way you can be comfortable throughout your retirement. However, a reverse mortgage is not right for everyone, so you need to make the decision for yourself carefully based on all the facts about these unusual retirement loans.