All About Daily Mortgage Press

The Most Important Things To Know About Reverse Mortgages And Financial Advisors

Jul 25

Many homeowners are unaware of the benefits of a reverse mortgage. Reverse mortgages are also known as second mortgages or equity loans. With a reverse mortgage, you receive cash from a lender to purchase residential real estate with the intention of selling it for more than you paid for it. The balance left over after selling your home is called the loaned amount, and it’s what you use to fund other financial goals such as retirement or the purchase of a second home. Mortgage loans have become increasingly popular these days due to their ability to help you build wealth, pay for housing costs, and even secure retirement security traditionally reserved for those who can afford a down payment. You should know that lenders don’t offer every type of mortgage unless they are confident they can sell them to enough people. Similarly, only financial advisers can give advice on which type of mortgage best suits your needs and financial situation.

What Is A Reverse Mortgage?

A reverse mortgage is a loan or an advance given to homeowners who are at least 62 years old. These loans are repaid in monthly installments until the borrower dies, moves out of the home, or needs money for other reasons such as medical expenses. If you borrow more than the value of your home, you can then sell your home for a profit and pay off the balance with cash from the sale. Reverse mortgages are infamous for allowing seniors to sell their homes without having to make a payment on the loan until they die. As a result, borrowers often don’t know what they’re in for when taking out a reverse mortgage. They might assume that all is well when receiving their loan, but what if there is no way to repay it? The effects of unexpected death taxes can be devastating for borrowers who aren’t prepared financially or emotionally.

How Does A Reverse Mortgage Work?

The reverse mortgage process starts when you apply for a loan with a lender that offers this type of mortgage. You don’t have to pay for your home, but the lender does ask for certain things as collateral. Before approving your loan, the lender will make sure you can cover all of your expenses with the monthly income you receive from the loaned amount. The reverse mortgage allows you to borrow money against your home and sell it at a later date without liquidating or selling your primary residence.

Pros And Cons Of A Reverse Mortgage

A downside of a reverse mortgage is that the loaned amount includes your interest and fees. This means you’ll need to pay extra to use the money for a second home purchase or retirement. The other major downside is that you must repay the loaned amount within 15 years, or it has to be refinanced. If you don’t repay it within this span, the lender gets all your property as collateral. You might not be able to sell your property at an acceptable price, which would mean that the entire loan amount would have to be paid back.

Financial Advisors And Reverse Mortgages

Financial advisers create a financial plan for you and offer their expertise in making sure that the mortgage is structured to meet your needs. A good adviser will also help you understand how the reverse mortgage process works and what the benefits of it are. They can also give advice on how to make sure that you’re not overpaying for your property and that you know when to stop paying back the loan.

Which Type of Loan Should You Choose?

If you have the ability to pay for your own home outright, then a conventional loan is best. If you need help with down payment, interest rate, or maximum loan amount, then consider a FHA-insured mortgage. Conventional loans are issued by private lenders that offer conventional mortgages through banks and credit unions. These loans aren’t insured by the Federal Housing Administration (FHA) like most other types of loans are. An FHA insurance loan gives you a low down payment option while you receive an interest rate reduction. The interest rate on an FHA-insured mortgage is usually lower than that of a conventional mortgage and usually can be repaid in smaller monthly payments than what would be required for a comparable size of a check. A VA loan is another type of mortgage that offers unique benefits such as being able to avoid paying taxes on up to $250,000 in property value or cash from selling the home if it’s not used for personal reasons or as part of a estate selling process.

Financing Costs With A Reverse Mortgage

A reverse mortgage is a long-term loan, which means the interest rates are high when compared to a traditional mortgage. The lender also charges closing costs and fees before you start receiving payments. These fees can be substantial, ranging from $1,000 to $5,000 in certain cases. A few of these other costs include:

  • The cost of your appraisal report and title search
  • Mortgage insurance premium
  • Mortgage credit report fee
  • Appraisal supplement fee
  • The interest rate for a reverse mortgage is about 3 percent higher than that on a traditional mortgage.
  • If you’re looking for additional perks with the reverse mortgage loan, you’ll likely need to up your monthly payment by about 10 percent per month to cover them.

Conclusion

If you're planning on retiring soon, a reverse mortgage may be the right loan for you. A reverse mortgage is a type of home loan that allows seniors to access the value of their homes upon death, or if they no longer require them for their own use. That's right, you can start living in your home again once you've paid off the loan! The loan can be repaid over a number of years and offers potential tax deductions as well. To get started, talk to your financial advisor about their experience with reverse mortgages. A good advisor will offer unbiased advice and will make sure you understand everything about the loan.

 

Nationwide Equities Corporation
1 International Blvd #1202
Mahwah, NJ 07495
(201) 529-1401
nwecorp.com