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Advantages and disadvantages of reverse home loans

Retirement is a period of peoples’ lives when a lot changes in a short space of time – not least the amount of money that is coming in on a regular basis, and the fact that all of a sudden you stop work. While re-mortgaging houses are a popular option to bridge this gap, this can result in years of debt and no real legacy to leave for your family upon your death.

 For people at or approaching 62 years old that own their own house and live in it as their main residence, reverse mortgages present another option worth considering. They are an attractive and mutually beneficial option that can balance some financial freedom in retirement with the security and stability of still living in and having responsibility for your own home.

 In this article we look at the benefits of reverse mortgages, and some of the potential pitfalls to look out for.

 A route to some financial freedom 

Reverse mortgages offer a different way of lending, in that they can be setup so you actually receive monthly payments, a credit line, or a lump sum from the lender according to your personal preference. Monthly payments are a popular option for this, as they provide a predictable amount of money each month that can be easily budgeted and planned. Your lender will be able to advise in more detail based on your personal situation.

 How much can you borrow on a reverse mortgage? 

The amount is calculated using an online tool that assists the lender in determining your financial position, and whether a reverse mortgage is the best option for you. These online reverse mortgage calculators are designed to consider the applicant’s age, health and financial positions, and how much is still owed on your original mortgage (i.e. the equity you have in your home). The cash from the reverse mortgage then becomes available once you have paid off your original mortgage – you basically get the difference.

 What else should you consider? 

 While reverse mortgages are an increasingly popular option for retirees, there are some things you should bear in mind. It is essential that the property you are taking out the reverse mortgage on is the one you will be permanent resident in, otherwise the loan would become invalid. This can even apply if you decide to live in a second home for certain periods of the year, or if you take a long trip overseas, so make sure that you check the terms and conditions carefully to ensure that a reverse mortgage is right for you.

 You also need to factor in that just like a conventionally mortgaged house you as the resident still need to take care of the costs of taxes on the property, putting the appropriate levels of insurance in place on it, and in carrying out (and funding) any maintenance, repairs and improvements that need doing to it.

 But on the other hand, taking out a reverse mortgage will free up cash for you to enjoy in your retirement years, so why not start planning your holiday with it! There are far more good things than bad things about reverse mortgages in our view.

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