Reverse Mortgages: Regaining Financial Stability

For many people when they retire it can feel a bit like jumping off a financial cliff and not knowing if your parachute will open. Even with a pension there can be a large income loss and it can be scary when you do not have a plan for managing this. One possible option which could help you regain financial stability is by applying for a reverse mortgage.

a backdrop of dollar bills
Photo by Sharon McCutcheon on Unsplash

A Traditional Mortgage Makes You Financially Unstable

A traditional mortgage can put financial pressure on you at a difficult time. Despite it appearing to help you, it requires you to start the repayment process quickly. You also have to adhere to a strict pattern of paying mortgage bills by established dates. Failing to make your mortgage payments can leave you in even more dire financial straits. 

How a Reverse Mortgage Increases Financial Stability

A reverse mortgage increases financial stability by removing the pressure of mortgage repayments. You simply spend your money on bills or other things to make your retirement comfortable and enjoy it. With no bills arriving in the mail from your mortgage company, you can relax. The repayment occurs only when you are ready or when you no longer meet the requirements to keep the agreement in place. For example, moving out of the home triggers the end of the contract and the need for total repayment.

A Reverse Mortgage Versus an HECM

If you have heard of a “home equity conversion mortgage” or “HECM,” you might be wondering how it differs from a reverse mortgage. The answer is it doesn't much. The reverse-loan HECM terms are almost identical except the loan comes directly from the Federal Government. It is offered through an official agency and has federal insurance protections. Both HECMs and standard reverse mortgages must adhere to the same basic rules. However, the additional rules of HECMs are a bit more regimented and consistent than those established by individual private lenders.

A Reverse Mortgage Relieves Monthly Pressures, Sometimes

Another advantage of a reverse mortgage is it relieves monthly pressures if you opt to receive funds from it in the form of monthly checks. Each month that allows you to essentially receive a pay check of sorts. Although that will only last until available funds are exhausted, for a time it can relieve monthly financial pressures for you while you adjust to the change in income.

You Can Customize Your Reverse Mortgage

If you do not want monthly portions of your reverse mortgage money doled out to you, do not worry. You have customization powers regarding how you are paid. You can ask for one large payment like you would normally get from a standard loan. There are also credit line options available, if you prefer.

Reverse Mortgages and Your Personal Assets

Another reason to consider a reverse mortgage is it offers you asset protection. Your personal assets are never at risk for the duration of the loan, even if you fail to ever pay it back. The home itself can be sold, but nothing else you own is at risk. Therefore, the total risks are limited.

Choose Your Mortgage Wisely When You Choose

As great as reverse mortgages may sound, they are not for everyone. It is important to choose wisely between a traditional and a reverse loan. You also have to choose the source of your reverse mortgage carefully, if you do opt for one. Make sure you examine interest rates and other rules, even if they will not become relevant for many years. Then you will be prepared for both the short term benefits and the long-term consequences of such an agreement.

***Disclosure: this is a collaborative guest post. I am not a trained financial advisor and this post is not intended to take the place of professional advice.  It is recommended you seek professional advice before making any significant financial decisions which will affect you or your family. Reverse mortgages are available in the US and Canada and information in the post is not relevant for UK readers***

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