You’ve been looking forward to the golden years of retirement for most of your life, but now you’re faced with the possibility that your retirement savings may not be enough. Before you panic, you’ll want to take a look at your expenses and create a budget. In the case that it seems like you’re going to barely get by or might even fall into debt, you may be looking for ways to improve your financial freedom.
You may be surprised that you have quite a few options if you have a lot of assets or own your home. If you’re primarily considering a reverse mortgage, there are several things you should know before moving forward with the process.
Be Wary of How It Will Affect Your Benefits
In certain states, a reverse mortgage loan may affect your eligibility for receiving means-tested benefits such as Medicaid. As you well know, these benefits can be critical to your well-being. Before applying for a reverse mortgage loan, it is important to do your research and plan accordingly to ensure that your loan will be dispersed in a way that prevents any interference with your benefits.
There Are Restrictions on How You Spend It
You may be under the impression that a reverse mortgage will give you the funds you need to live more comfortably in your retirement, including the ability to travel more. While that might be true, the funds from your reverse mortgage must first be applied to paying off your mortgage as well as costs such as property taxes, insurance, and necessary repairs.
You Might Not Qualify
While reverse mortgages are a popular solution for retirees, not everyone qualifies. There are several factors that can impact your eligibility, including:
- Age – the youngest homeowner must be 62 years old
- Multiple homes – the house you are applying for a reverse mortgage for must be your primary residence
- The existing balance on your mortgage
- Value of your home equity
Some of these factors are cut and dry. However, a professional can best evaluate your eligibility and determine whether you qualify.
It Isn’t a Get Out of Jail Free Card
A reverse mortgage loan can mean more money in your pocket, but that doesn’t mean it will solve all of your financial problems. The amount of your loan is dependent on your circumstances. In some cases, this may be enough for you to address your debt and have discretionary income. For others, it may mean that you are able to wipe out a good portion of your debt but need to continue budgeting. Typically, older loan recipients receive more because their house is valued higher.
You might want to get an estimate of your loan amount before moving too far into the process. In some cases, if you can wait a few more years to start your reverse mortgage, you can get a lot more money. This is especially true if you live in an area where property values are predicted to see a big increase in the near future.
Failing to Follow the Rules Might Mean Big Consequences
While the loan terms of reverse mortgages are typically quite favorable for homeowners, if you falter on your obligations, you will face consequences. As the recipient of a reverse mortgage loan, you are responsible for paying your property taxes, insurance, and other ownership and maintenance expenses. If you fail to do so, the consequences may include:
- Notification of default to creditors
- Cessation of monthly payments
- A lien on your home
Properly tracking and managing your responsibilities as a property owner can help you prevent this.
While taking out any type of loan isn’t most people’s first choice to improve their financial stability, it might be your best option. All in all, reverse mortgage loans that leverage home equity are a popular option amongst seniors who want to reduce their current financial burden. Taking advantage of your investment as a homeowner to provide a buffer in your income can allow you to live more fully throughout your retirement.