A reverse mortgage is a non-recourse home loan that is based upon age and the equity that you have in your home, according to Investopedia, and not your income or creditworthiness. The minimum age that you can apply for one is 62, and repayment typically doesn't start until after you have passed away; unless you sell the house early or violate the terms of the loan, like renting the house out or not using is as your primary residence.
It is not uncommon to be living on a fixed income and a set and restricting budget for many older Americans. But sometimes you may require more cash than is on-hand for one or more reasons. Here are a few examples of where a reverse mortgage might be able to help you.
Remodel Your Home
According to Red Beacon, the average home remodel cost ranges between $22,000 and $36,000 for homes that are between 1,000 and 4,000 square feet. If your home is in need of a remodel due to age, a reverse mortgage is a commonly used vehicle for achieving this goal.
Pay Off High Interest Debt
High interest debt is rampant for older Americans, explains CNN, with the average couple carrying a $50,000 balance. Now some of this debt is inclusive of remaining balances on home loans combined with credit card debt. But a reverse mortgage pays off the remaining home loan and then provides the funds (with a variety of payout options) to the borrower, enabling them to eradicate most high interest debt.
Cover Unforeseen Medical Expenses
A CNBC article explains that medical expenses are the leading cause of bankruptcies in the U.S. today. But many older Americans struggle with medical expenses these days, something that a reverse mortgage can help resolve. Others may even take out these loans just for added peace-of-mind, in case unexpected health issues should arise in the future.
Consolidate Your Debts
Debt consolidation can save the average person thousands of dollars. While plenty of examples can be given, this one explains it all. According to Time Value, if you had a credit card debt of $5,000 at a 10.99% interest rate and you tendered a monthly payment of $100, it would take you 68 months to pay off and you would have tendered $1,720.05 in interest. Imagine what this could be if you had two or three times that or more in credit card debt?
Learn Your Options
A reverse mortgage is a popular option for older Americans who are seeking extra cash to manage their lifestyles or preserve them, take a vacation, remodel their homes, pay off some debt or eliminate medical bills. But they should also be very carefully considered, too. Make sure you learn about all of your options by speaking with a certified counselor so you can arrive at an educated decision.