Are There Any Safe Reverse Mortgages?
When you take out a reverse mortgage, you remain the owner of the home like any traditional mortgage. As such, you are still responsible for property taxes, paying homeowners insurance, and making home repairs. If you don’t pay them, the lender can claim the loan for repayment. So now we will talk about the question, ‘Are there any safe reverse mortgages?’
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Is there any chance of default?
Reverse mortgages are quite safe since there is no chance of default because you are not making monthly payments. And his heirs must repay the loan when he/she passes away. This can be done by selling or refinancing the home. But the value of the house must be more than what is owed on it. Otherwise, the heirs can only pay the debt and keep the house.
Can the lender claim more than the value of the property?
Also, when the lender sells the property to get back the money you’ve invested, any additional proceeds that exceed the value of the home are delivered to the borrower or his heirs. However, the proceeds from the sale may not be enough to satisfy the debt. In such a case, the lender cannot claim more than the value of the property at the time of the sale. This happens because a reverse mortgage is a loan without recourse. Therefore, the lender cannot chase your income and assets or ask the heirs to pay the remaining balance.
Thus, reverse mortgages are quite safe as there is no chance of default and the lender will not go after you and claim more than the value of your property.
How safe is a reverse mortgage?
As we get closer or begin to retire, many of us discover that we could use more income. There are several ways to increase your cash inflows, such as part-time jobs or dividend-paying stocks. Here is another option you could consider: the reverse mortgage. What are reverse mortgages and how safe are they? Let’s explore that.
Understand the reverse mortgage first
Getting a reverse mortgage to sell your home to a lender for money (in the form of a lump sum, income stream, or line of credit) is much like being allowed to stay in your home for as long as possible. However, technically it is a loan. Generally, you borrow less than the house is worth, and the amount you owe over time increases as interest is applied to it. The loan does not have to be paid until he/she dies, sells the house, or stops living there, perhaps because he moved to a nursing home. At that time, the house can be sold to cover the debt, or its heirs can pay it and keep the house.
Reverse mortgages can be a relatively safe and effective way to increase your retirement income, but they have some downsides or drawbacks.
What’s good about it?
The advantage of a reverse mortgage is that it can give you a welcome stream of income in retirement. With millions of Americans financially ill-prepared for retirement, that’s a lot. After all, according to the 2016 Retirement Confidence Survey, among those over 50, only 30 percent saved $ 250,000 or more for retirement, while 27 percent completely saved less than $ 10,000!
Reverse mortgage income is also usually tax-free, which is another great advantage. And while some retirement financing solutions require you to sell and downsize your home or even move to a less expensive region, reverse mortgages will allow you to stay in your home while you receive payments.
Before you go, I hope this article summing up the answer to ‘Are there any safe reverse mortgages?’ is helpful for you.