The Pros and Cons of Reverse Mortgages
At the Seniors Lending Centre, we’re passionate about helping clients make well-informed and financially sound choices regarding their mortgages. Many come to us asking whether a CHIP reverse mortgage is ideal for their circumstances – click here to learn more about them. Oftentimes it is, but sometimes another option can be more suitable. Today, let’s explore in detail the pros and cons of reverse mortgages in hopes of helping you come to an effective decision regarding your finances.
Pro: Fewer Hoops to Jump Through
Unlike a traditional line of credit or regular mortgage, a reverse mortgage application doesn’t require you to prove your income. What you borrow doesn’t interfere with your pension or otherwise as it is tax-free, and you are within your right to spend the received funds in any way you wish.
Pro: Your Property Remains Yours
Since you get to keep your home as your own, you’re effectively able to leverage a sizeable asset while continuing to enjoy your everyday life in its surroundings. Not only that, but you have the option of releasing further equity if your home’s value increases or if you don’t withdraw the entire reverse mortgage amount. So, if you’re wondering whether your property will continue to appreciate in value, it sure will!
Con: Higher Fees and Interest Rates
In the case of a CHIP reverse mortgage, your interest and fees will be a little higher than those of a regular one. They won’t be as high as a second mortgage, credit card, or otherwise, however. If you budget accordingly and are well prepared for this, such as with the help of one of our dedicated financial advisors, it won’t be something you’ll need to stress over. Proper planning means peace of mind!
Con: It Must be Paid off Entirely, by You or Your Estate
Should you pass before your reverse mortgage is repaid, your estate and executor of the will is responsible for managing future payments. Bear in mind that only the amount borrowed, along with any interest accrued for it, will need to be paid back. The same applies if you decide to sell your home and move elsewhere.
Pro: You’ll Never Owe More than the Value of Your Property
Since reverse mortgages don’t utilize 100 percent of your home’s equity, you’ll never end up owing more than the value of the property in question. This is also owed to the fact that your home will continue to appreciate in value, especially if you intend to use some of your reverse mortgage funds to make home improvements such as modernizing heating and/or cooling systems, replacing your roof, or adding a garage.
Pro: Receive Your Funds However You Wish
Speaking of which, you’re not stuck with a massive influx of funds if you don’t want to be, as this can be overwhelming for some folks. Instead, with reverse mortgages, you have the option of receiving any combination of a lump sum and/or regular monthly payouts. Please bear in mind that options will vary depending on the provider you choose.
Con: Interest Can Rapidly Accumulate
Since you can pay off the loan whenever you wish and there’s no need to worry about monthly payments, not to mention the fact that you’re not responsible for changes in the housing market, something’s got to give. And that’s interest, which can accumulate considerably if you don’t follow a cost-effective payment plan of your choosing. Such is the case when withdrawing a large amount, so be sure to bear this in mind.
Need a hand with determining whether a CHIP reverse mortgage is an optimal solution for you? We’re happy to help at the Seniors Lending Centre. Click here to get in touch with our team today!
