Aside from wanting to relocate for work purposes or seeking a change of environment, selling a home normally comes up when the homeowner needs cash. This can happen to anyone whether young or old. But why would you consider selling your home when you have other options like taking an equity or reverse mortgage loan? Of course, many people fear taking loans of any kind for various reasons. That’s okay! But, in this piece, we tell you why to consider a reverse mortgage than selling your home.
What is a reserve mortgage?
A reverse mortgage is a loan package for homeowners above 62 years. It allows seniors to convert part or all their home equity into a cash component. That is, the lender calculates the market values of the property, and gives you tax free cash every month. So, instead of paying the bank monthly for a loan, the bank pays you.
This offers retirees with less cash inflow to have monthly payments to cover some monthly expenditures, while still enjoying their home.
Unlike other home equity loans, seniors only repay their reverse mortgage when they decide to sell the home or die. After your death, the lender comes in to sell the loan, pay the loan, and any remaining balance goes to your heir or family.
Before, contacting a lender or bank for a reverse mortgage, you can use the reverse mortgage calculator to check how much you can get from the HECM loan. Now, here are reasons you should take a reverse mortgage vs selling your home.
Should you take a reverse loan or sell your home?
Well as already stated, this piece is a proponent of taking a reverse mortgage loan instead of selling your property. Each option has its pros and cons, you may want to sell your home fast to raise enough money for something urgent, but a reverse mortgage has several advantages. Here are why
Retain home ownership
Unlike selling, you still retain ownership of the home after taking a reverse mortgage. This is advantageous because you wouldn’t have to spend on rent or buy a new home, despite receiving money. Until you are dead or decide to sell the property, the lender cannot evict you.
Living in your own home gives you much peace and comfort during your old age. As old age comes with various illnesses, homecare may be needed at a point. If you live in your own home, caregivers can attend to you there, instead of having to move to a nursing home which may be costlier.
With monies from the reverse mortgage, you can make the necessary home modifications to make your home suit your old age needs.
Receive monthly payments
Reverse mortgages can come in a lump sum, line of credit, or monthly payments. If you choose the latter, the loan will be breakdown and paid monthly. This is a very good option for seniors with less monthly cash flow as it augments whatever you are receiving from retirement packages. The money can take care of monthly expenses like paying bills and other spending like paying medical bills. The borrower can also choose all three forms of payment methods.
Payments not taxable
Reverse mortgage payments are not taxable. Payments disbursed are considered loan proceeds and not income. But after selling your home, you need to declare and pay tax on the money gained.
Low risk of default
Since the loan is paid after the demise or relocation of the primary borrower, it is almost impossible to default on a reverse mortgage loan.
Heirs can repay the loan
After the death of the primary borrower, heirs can decide to repay the loan and keep the loan. That is an option since they are liable for repayment. But, sometimes, a home may hold many memories that a family may decide to keep it. with that, they can pay the reverse mortgage and keep it.
No debt on heirs
In case the lender is unable to recoup the debt after selling the home, the heirs are not liable to pay it. instead, the Federal Housing Administration (FHA) will absorb the loss.
Conclusion
Taking a reverse mortgage or selling your home all come with pros and cons. It is up to you to decide what you want. If you need money urgently, want a change in environment, or want to downsize your home, then selling becomes the best option. Anything aside from that, go for a reverse mortgage and keep enjoying your home.
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