Considering a reverse mortgage is a tough call for anyone, even those in retirement who are tight on cash. In a recent article, Credit.com provided one worried reader with some food for thought on the prospect of getting a reverse mortgage.
The reader explained that they own a home without a mortgage and money is tight, but still aren’t sure if a reverse mortgage is that best option to pay for their expenses.
Taking a reverse mortgage is not a decision to take lightly, the article explains.
“Unlike a traditional forward mortgage where you send principal and interest payments to the bank to build your equity over time, with a reverse mortgage, the bank sends you payments over time which reduces your equity and builds up the debt you owe on the home,” Bryan Smalley, certified financial planner with RegentAtlantic, said to Credit.com.
Even though there are no monthly payments owed on the reverse mortgage while a person is living in their home, when they either move, sell the home or pass away, the loan balance may be settled through the sale of the property, Smalley explains to Credit.com.
It’s important to compare prices and shop around though before making a decision about a reverse mortgage, he explains in the article, because costs tend to be higher for a reverse mortgage.
Aside from taking out a reverse mortgage, Smalley stresses considering other alternative options to fund living needs. A home equity loan and a home equity line of credit are two alternatives to a reverse mortgage Smalley gives in the article.
Downsizing to a smaller home is another option, he explains, if tapping into home equity doesn’t feel like the best option.
Even though older Americans have stronger credit, that doesn’t necessarily mean they don’t have to follow smart spending habits, the article explains. Overall, they should be making a decision based on what’s right for their individual financial situation.
Read the Credit.com article.
Written by Alana Stramowski