Everyone hopes that life will get better and become easier as they get older and that their retirement years will be the best years they ever lived. The truth is that you want to spend your golden years accomplishing interesting things, taking care of your health, and focusing on what truly gives you meaning.
Unfortunately, this isn’t always the case as you may find yourself worrying a lot about keeping up with debt repayments. Add that to the housing costs, living expenses, and health care costs in retirement, and you’re left with nothing but a lower quality of life, to say the least.
The good news is that you can leverage the equity in your home and retire debt-free. Yes, you can take a reverse mortgage and use it to consolidate all your debt so you won’t have to worry about the monthly debt repayments anymore. Read on, and you’ll learn what a reverse mortgage is, whether it’s a viable option for you, and how you can use it to pay off debt.
Understanding Reverse Mortgages
Reverse mortgages offer homeowners aged 62 or older― and particularly those who’ve cleared (or paid most of) their mortgage― a way to borrow a portion of their home’s equity and receive funds from a lender. By taking a reverse mortgage you’re simply tapping into and unlocking the equity you’ve built in your home over the years so you can access funds either as a stream of fixed monthly payments, a lump sum, or line of credit.
Unlike a forward mortgage (also referred to as a regular mortgage) in which the lender requires the homeowner to make monthly payments over time until the home is paid off, with a reverse mortgage the loan becomes due for repayment when the homeowner decides to sell the property, moves away permanently, or dies.
How Do Reverse Mortgages Work?
The Home Equity Conversion Mortgage is the most popular type and allows the homeowner to use the funds for any purpose. The homeowner isn’t required to make monthly payments to the lender as long as they continue living in the home as their main residence. This means your equity in the home drops over time while the amount you owe the lender increases as the interest adds to your loan balance each month.
The amount of money the homeowner receives often depends on how much they owe on their current mortgage, the value of their property, prevailing interest rates in the market, and their age. The good thing about reverse mortgages is that the homeowner remains the owner of their property. Furthermore, they are protected in the event the housing market declines and won’t have tax liability. You can use a reverse mortgage calculator to see how much you would qualify for.
Who Qualifies for a Reverse Mortgage?
As mentioned, reverse mortgages are only available to older adults (62 years or older) who have enough equity in their homes. This means you have to be the outright owner of the home or still owe a small amount on your mortgage. Borrowers are also required to have their financial situation assessed to ensure they’re in a position to continue paying for any homeowners’ association (HOA) fees, maintenance costs, insurance, and property taxes.
Additionally, the property must be your primary residence and you shouldn’t be owing any federal debt. Keep in mind that homeowners with mobile or manufactured homes aren’t eligible for a reverse mortgage. Finally, it’s important that you check the FHA standards to make sure your home meets them before applying for the loan. Once a lender approves you for the loan, you’ll be required to attend a counselling and information session facilitated by a counselor approved by the Department of Housing and Urban Development.
Paying Off Debt With Get a Reverse Mortgage
It’s not uncommon for senior citizens to find themselves carrying a lot of debt that they can’t keep up with the monthly repayments. This is quite unfortunate. But that doesn’t mean it’s the end for you― especially if you have significant equity in your home. If you’re aged 60 or older and overwhelmed by debt, taking out a reverse mortgage might be the best option to pay off all your existing creditors.
With a reverse mortgage, you can consolidate all your debt― car loan, credit card balances, mortgage, personal loan, cash advances― into one loan that either eliminates or reduces your monthly debt repayments. As a result, you get to remove stress and keep more cash in your pockets every month. Plus, you won’t have to tap into your retirement savings way earlier than you should. Make sure you meet your obligations when you take out this loan to pay off your debt. Failure to do so could mean losing your property to foreclosure.