If you are at least 62 years old and a home owner, it is likely that you've heard a thing or two about reverse mortgages. If you don't know much about reverse mortgages, don't worry -- this article will help you better understand why they are likely a better choice than simply refinancing your home.
Why some people choose to refinance their home.
Refinancing your home mortgage can be done for many different reasons. Commonly, consumers refinance mortgages to lock into a more favorable mortgage rate or to extend the length of their current mortgage loan to make lower monthly payments. Mortgage refinancing tends to be beneficial for the loan holder if interest rates have dropped 1.5% or more. For those under the age of 62, a reverse mortgage will be out of the question and a mortgage refinance should be properly looked into.
The advantages of reverse mortgages over refinancing.
A reverse mortgage is, in essence, a mortgage loan that will never have to be repaid over your life as long as you live in the home that your reverse mortgage is linked to. Repayment of the reverse mortgage won't be due until the last remaining signer or co-signer has passed away. Once this happens, the house is sold and the value of the reverse mortgage is repaid. Be aware that, no matter how long you live, the value of the reverse mortgage will never exceed the value of your home.
The primary benefit of a reverse mortgage is that it doesn't require a monthly payment. Because everything is paid post-mortem, this choice becomes popular for those who aren't passing on their home to family members.
The next benefit is that you won't need to have a steady income stream in order to be accepted for your reverse mortgage. Many people over the age of 62 years old rely on Social Security as a primary income source. Whereas this income source will not be acceptable for refinancing, it will be acceptable for a reverse mortgage.
The final benefit is that you won't have to worry about your home being foreclosed due to a limited income stream. With a reverse mortgage, you are essentially turning your home into cash. For each month that you live, this cash stream will become less and less. Therefore, you can think of a reverse mortgage as essentially liquefying one of your biggest assets (your house).
Are there any downsides to a reverse mortgage?
Of course, there are some limited downsides to a reverse mortgage. Generally speaking, these downsides do not outweigh the upsides. With this type of mortgage loan, you will need to pay closing costs to open the loan. This can be quite expensive, but fortunately you are able to use your newly acquired mortgage to pay these closing costs. Along with this, you will use your reverse mortgage to close out your current home mortgage. Both of these costs can be substantial and will drastically reduce the value of your home.
For those of you looking to get out of the pressures of your home mortgage and don't see mortgage rates dropping in the near future, it would be wise to consider the upside of a reverse mortgage.
Author Resource:
Edison Chase lives in Boston MA and writes on a variety of topics including mortgage rates in Massachusetts and DIY home building projects
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