Retirement Planning: Are you ready? Part II
There is an increasing amount of retirees considering a reverse mortgage to relieve themselves from debt and monthly mortgage payments. A reverse mortgage is: a loan that is designed for homeowners 55 years of age and older (if you have a spouse, the age qualification applies to both of you). A reverse mortgage is secured by the equity in the home, which is the portion of the home’s value that is debt-free. It allows homeowners to obtain cash, without having to sell their home. Not all lenders offer reverse mortgages.
Disadvantages of a reverse mortgage:
– Reverse mortgages are subject to higher interest rates than most other types of mortgages.
– The equity you hold in your home will decrease as the interest on your reverse mortgage accumulates over the years.
– At your death, your estate will have to repay the loan and interest in full within a limited time. The time required to settle an estate can often exceed the time allowed to repay a reverse mortgage. For full details, check with the reverse mortgage lender.
– Since the principal and interest will be repaid to the lender at your death, there will be less money in your estate to leave to your children or other heirs.
– The costs associated with a reverse mortgage are usually quite high. They can include:
– A higher interest rate than for a traditional mortgage or line of credit
– A home appraisal fee, application fee or closing fee
– A repayment penalty for selling your house or moving out within three years of obtaining a reverse mortgage
– Fees for independent legal advice.
http://www.fcac-acfc.gc.ca/eng/resources/publications/mortgages/Pages/Understa-Comprend.aspx
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