The Pros And Cons Of Reverse Mortgages
If there’s one product in real estate that tends to get a lot of publicity, it’s a reverse mortgage. Mortgage companies often hire celebrities to tout the virtues of a reverse mortgage. But what are the pros and cons of a reverse mortgage and is it right for you?
What is a Reverse Mortgage?
Let’s say that you are elderly, and have lived in your home for many years—long enough to have paid down your mortgage significantly. Combined with the appreciation in value, there is a lot of equity in your property.
But what good is that equity—you are probably never going to move again. You could use all that equity to help you pay your regular bills, go on vacation, or do anything else. In short, the cash means more to you than the equity.
A reverse mortgage allows you to get paid from the equity in your property. If you had $100,000 in equity in your home, and got paid $1,000 every month from the equity through your reverse mortgage, at the end of year one, your equity would be $88,000, your equity after year two would be $76,000, and so on.
Yes you are reducing the equity, but if cash in hand means more to you than equity when and if the house ever gets sold, then a reverse mortgage may be a good idea.
How to Get a Reverse Mortgage
Some reverse mortgages will pay you every month, and some will pay just a lump sum to you all at once. Many reverse mortgages also will require that you be a certain age, and that you have a certain amount of equity in your home, to get the reverse mortgage.
The Potential Negatives
There are some negatives to a reverse mortgage.
If you are leaving your home to others in a will or estate plan, you are taking away the equity that your relatives will inherit. Additionally, many reverse mortgages will be considered in default when you pass away (or if you ever do opt to move out of the home, or rent it out instead of living in it).
All of this means that people leaving property to family, may want to think about reverse mortgages before taking them out.
Reverse mortgages can also be problematic because they still require that the owner pays expenses unrelated to the mortgage.
For example, property taxes, homeowners association dues, or insurances owed on the property still must be paid, even if the property’s mortgage is paid off.
This may not be a negative, if you’re aware of these expenses, and are prepared to pay them—the problem is that many people don’t realize they still need to make these payments, and you can be foreclosed upon for not paying these expenses.
Questions about refinancing, or buying or selling property? We can help. Contact the Tampa real estate lawyers at Gilbert Garcia Group, P.A.