When planning for retirement, one of the most important factors to consider is a source of income. Retirees do not have a stable income from employment anymore, which means that they must rely on other sources of income. It is important to plan well to ensure that you will have enough income to finance all of your expenses while in retirement. One of the tools that retirees are coming to use more and more these days is the reverse mortgage. This article will cover some of the reasons why revers mortgages can be a legitimate retirement tool.
Specifically designed for seniors
Reverse mortgages are specifically designed for senior homeowners. In the US, homeowners who are at least 62 years old can qualify for reverse mortgages, making it a viable tool for retirement. Reverse mortgages allow senior homeowners to tap into their home equity as a source of income. Normally, homeowners make payments to mortgage lenders, which can often cost a lot of money, even at the lowest rate. With reverse mortgages, the lender makes payments to the homeowner. All of the payments and charges on the reverse mortgage are deferred until the home is sold or until the homeowner no longer lives at the mortgaged property.
Continuous stream of income
One of the advantages of reverse mortgages is that they can offer senior homeowners a steady source of income. When applying for a reverse mortgage, homeowners can choose how the lender will make their payments. Retirees can choose from a lump sum payment, a periodic payment scheme, a line of credit plan, or a combination of any of these three modes. In effect, homeowners with enough equity can have lenders make periodic payments for as long as they live in their homes. In most cases, reverse mortgages can offer better returns than the lowest rate loan or the lowest rate home equity loan.
Non-recourse financing
Whether you get the lowest mortgage rates online, the lowest home equity loan rate, or the lowest loan rate available, you may end up owing much more than you can pay for while in retirement. The great thing about reverse mortgages is that they are a type of non-recourse financing. As such, the amount owed to the lender can never exceed the value of the borrower’s home. Such a system makes reverse mortgages ideal for retirees, who may find it hard to repay other types of loans as they build up in cost.