The concept of reverse mortgages gets thrown around often, but what are they and how do they work, and how does one apply for a reverse mortgage such as offered by bloomfin.ca. It has many benefits and some disadvantages, so it’s important to understand both before applying for one. Here are four things you should know before getting a reverse mortgage on your home.
1) What is a reverse mortgage?
A reverse mortgage is basically exactly what it sounds like: a loan on your home that’s repaid after you die or move out. Reverse mortgages have become increasingly popular as an option for seniors who no longer have an income, but who still want to live in their own homes. A reverse mortgage provides a loan against the home equity to the homeowner. Typically, one doesn’t have to make payments while they live in their home. This means once they move out and stop making payments, any remaining loan will be due in full. A reverse mortgage basically takes money from your home and then pays it back over time. These payments can be useful for homeowners to even pay back the debts they have, which can be a significant load.
2) Who qualifies for one?
To qualify for a reverse mortgage, you must be 62 years or older, own your home, and have enough equity in your home to generate sufficient income. That last point is key: Equity is what separates reverse mortgages from other loans. Instead of paying back money with interest, you’re using someone else’s money to pay back your debts. There are also income limits that restrict who can get one. If you earn more than $46,000 per year as an individual or $61,000 per year as a couple filing jointly, you don’t qualify. The limit goes up to $62,000 per year if you’re married but file separately. And if your spouse is applying for a reverse mortgage but doesn’t live in your house full-time and/or isn’t listed on title as an owner of record—for example, if he or she lives elsewhere while working—the maximum income limit rises to $80,000 per year. Your lender will conduct an underwriting assessment based on current market conditions when determining whether you meet all eligibility requirements and have sufficient equity in your home.
3) How much can I get with a reverse mortgage?
The amount you can get with a reverse mortgage depends on current interest rates and how much equity is in your home. These terms also change according to marital status among other things. So ultimately, the amount fluctuates from person to person over the years as per the home market.
4) What are the advantages?
A reverse mortgage is different from other mortgages in that it allows you to withdraw money from your home as opposed to building equity. A reverse mortgage loan generally doesn’t have interest rates or monthly payments, but you’ll have to pay off any remaining balance when you sell your home or pass away. This can be an attractive option for older homeowners who want liquidity or don’t have enough income to support their financial needs. Plus, if your house has declined in value, getting a reverse mortgage means you could use your home equity without selling it. And if you don’t end up using all of the funds from your loan, those assets will transfer directly to future heirs when you die — typically without any tax implications.
Reverse mortgages are the answer to many of the senior citizens’ financial problems, especially as they do not require taxes and have multitude of ways in which they can receive money from it. Yet, deciding to get a reverse mortgage means to know that when one dies or moves out the home may not be part of the family legacy. There are also several scams that fall into reverse mortgages, so it is important to understand all the implications before deciding on getting it. But an informed decision will ultimately be the right one.
Produced in association with Craig Lebrau