Reverse mortgage loans are becoming increasingly popular with homeowners who are looking to make some changes to their financial situation. These types of loans always have their own eligibility criteria, but you generally need to be a senior citizen aged 62 or older. However, the loan is secured by the FHA and also serves as a wonderful option for people who are “house rich”. There is no hard and fast rule that restricts someone with a secure financial background to take out this type of loan. In this article, we will describe why a reverse mortgage loan can be a good option for seniors with secure finances as well as for people who are house rich.
Before we go any further, we should give a simple explanation of exactly what a reverse mortgage loan is. With a reverse mortgage loan, a senior citizen mortgages their home to get cash or monthly payments by a lender, typically a bank. The borrower receives the money as long as they remain in the home as their primary residence. In the event that the borrower passes away, the natural heirs can repay the loan amount or the lender can auction the home to receive any remaining value. Now that we’ve defined what a reverse mortgage loan is, let’s have a look at their benefits.
1. Loan for both “house rich” and cash rich people
Many people don’t see this loan beyond a loan for house rich people who need cash to provide for their daily needs. If you have home equity and have surplus savings for fulfilling your everyday expenses, you can still opt for this loan for home renovations or to pay an EMI to any other loan you have under your name. You only need to worry about taxes and fees that are usually charged so that you can be free from the stress of worrying about your extra savings that are needed for unseen emergencies. Nowadays you can opt for a no fee bank account that doesn’t charge like conventional banks do on annual fees or maintenance which can compensate for the fees you paid in obtaining reverse mortgage loan.
2. Creating an investment portfolio
Inflation is on the rise and the value of your money today could be quickly depreciated by tomorrow. This means that the total amount to make ends meet while still remaining financially supported can be a challenging balancing act. Now imagine a scenario where you can use the money you have in a better investment portfolio which will give you sufficient returns to repay back the reverse loan mortgage amount and also increase returns. This is where a reverse mortgage loan can be considered an option for you.
3. Reduce loan liabilities
In case you have more than one debt to your name, you can use the reverse mortgage loan as a debt consolidation loan. This means that a part of this loan will be directed towards paying your old debts, which can be a good option whether you are financially sound or not. The objective is to reduce the burden of having multiple debts to worry about.
4. Buying a second home
Using this type of loan, you can buy a second home as it will enable you to reside at one residence while planning for a second home using the monthly payments. The cost would come up to be lesser than a regular home loan.
5. Recession proof
At an older age, you generally live on the savings of your past and if you chose to rely on the value of your home, you may be making a big mistake. Recessions can change the equation where your home value can fall flat and you may find your savings inadequate. A reverse mortgage loan doesn’t reduce your monthly payments based on what tomorrow brings.
6. Relax and live happily
We all want a happy retirement and the key to a happy retirement is a continuous flow of money which can fulfill your usual needs and lets you live your current lifestyle without any restrictions.
Taking all above points into consideration, you may realize that the reverse mortgage loan option is not restricted to senior citizens who have lot of cash. Thus it can be used based on their financial needs, retirement plan, and discretion.