Posted on: 20 January 2015
Not everyone is set financially for retirement, so money can be tight. Reverse mortgages are an option for seniors who need financial help. To apply for this type of mortgage, you must be at least 55 years old or older. These loans tap into your home's equity to give you money, and the money is not paid back until you move or die. While this sounds good, is it right for you?
How A Reverse Mortgage Works
If you are a senior and own your home, a reverse mortgage allows you to borrow up to a specified percentage of your home's value. Depending on the value of your home, this can be a substantial amount. The money you borrow is given to you in regular intervals or one lump sum without having to make any repayments.
So, this sounds great, and under certain financial circumstances it can be. However, keep in mind that someday you have to repay the loan, or the house is turned over to the lender. This means you cannot leave your home to your heirs when you die if the loan balance is still outstanding. This is not a good idea for older couples who do want to leave a family home or land to their children or grandchildren. However, if you don't have any heirs, you can take out the loan, use the money, and allow your estate to pay off the loan when you die.
Be Careful When Considering Reverse Mortgages
Most lenders are honest, but when you are considering a reverse mortgage look out for lenders that prey on the elderly who have equity in their homes. Always stick with a reputable lender and make sure you understand the costs and fees you'll be charged as well. If you receive government benefits, be sure to find out how taking out a reverse mortgage will affect those benefits.
An Alternative To A Reverse Mortgage
If you are considering a reverse mortgage to help out with debt or financial troubles, you should discuss bankruptcy with a lawyer before taking out any type of loan. Depending on the availability of the homestead exemption, you may find that bankruptcy is a better alternative for you. Tapping into your retirement is another alternative, but is seldom a good idea. You can face serious tax consequences when you take an early pension distribution or fail to repay a personal loan taken out against your pension amount.
Before taking out loans or tapping into retirement plans, discuss bankruptcy options with an attorney to be sure that you are covering all your options. This way you can make the best decision based on your financial needs. And if you have questions about mortgage options, visit The Mortgage Centre - Northeast Alberta.Share