Professional Mortgage Solutions in Rego Park, NY is here to help break down the difference between traditional mortgages and reverse mortgages in this week’s blog post. If you are an older homeowner, and you are considering lending against your current home to purchase another property, then this week’s blog is just for you. This topic may help you answer the question of whether to use a traditional or a reverse mortgage to purchase your next property or to pay off debt. The first type of mortgage would be a new mortgage, and the latter would be a mortgaged financed from the value of an existing home that you own. The majority of reverse mortgages are made under the Home Equity Conversion Mortgage program (HECM)—there is a catch: you must be 62 years or older to quality. Read below for more information!
Pros of Reverse Mortgages
Reverse mortgages are mortgages that are made from home equity loans—the loans are typically made in monthly payments that come from the equity of the first home. Here is the first benefit of the reverse mortgage: it usually eliminates the need for monthly payments. Another benefit is that HECMs are backed. HECMs make up the majority of reverse mortgages—and they come with Federal Housing Administration insurance. HECMs can also be used to pay off debt or to grow assets. One can use the home equity to pay off an existing mortgage, or to purchase a new home.
Cons of Reverse Mortgages
Though there are benefits to reverse mortgages, they come with some pitfalls. They can come with a lot of closing fees and costs. You must also maintain the home you are borrowing against as well as pay its property taxes. Most obviously, you are going to lose equity through a reverse mortgage. For this reason, some recommend the reverse mortgage for those who will remain in the home and continue to afford its upkeep. Some retirees use a reverse mortgage to pay off debt, or to supplement their income. However, some lenders may charge fees just to service the loan.
Deciding the Next Step
There will be limits to how much you can get from a reverse mortgage. The amount will depend on your age, home value, as well as lending amount ceilings. If you desire to increase your assets or to pay off debt—there are many options to consider. You may be able to take out other forms of credit from your home equity, or, you could consider a second traditional mortgage. Professional Mortgage Solutions in Rego Park, NY is here to help coach you through the process. Contact us today for more information.