How to Pay Off Higher-Interest Debt with Proceeds from a Reverse Mortgage
When choosing to take a reverse mortgage to pay off higher-interest debt, it’s important to know that it is also a kind of debt that charges interest. Understanding how they work, and their impact on your financial situation can help you decide your best course of action. A qualified financial advisor can also help you weigh the pros and cons of this financial vehicle.?
How Reverse Mortgages Work?
It is important to understand that a?reverse mortgage?loan is a type of debt that comes with its own set of requirements. Borrowers can stay in their homes and no longer make monthly mortgage payments. To enjoy this privilege, borrowers must meet certain eligibility requirements.?
WHAT ARE THE ELIGIBILITY REQUIREMENTS OF A REVERSE MORTGAGE?
Pay Off Higher-Interest Debt??
The burden of higher-interest debt can be a significant challenge for seniors on a fixed income. According to?a 2016 study conducted by the National Council on Aging, 60% of older adults carry debt into retirement. Credit card balances are one of the most common types of debt. Higher-interest rates on credit cards can make it difficult to pay down the debt. Minimum payments barely cover the interest charges.?
A reverse mortgage loan can provide an option by allowing seniors to access a portion of their home equity to pay off higher-interest debts. With any analysis, paying off debt with reverse mortgage loan proceeds should include comparing the rate on your reverse mortgage loan with the interest rate on your existing debt to determine if the features of this loan are helpful to your financial situation. If a reverse mortgage loan does work for you, funds obtained from this loan can be used to pay off credit card balances, auto loans, or other debts with higher interest rates.?
Reduce the Amount You Owe by Paying Cash??
With certain types of debt, especially medical expenses, you may be able to negotiate how much you owe on your balance. For example, some doctors’ offices and hospitals will reduce their charges by a certain percentage to help return the account to good standing. However, this option is sometimes only available to those paying the debt immediately and with cash. A reverse mortgage could be one source of ready cash.??
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Pair Payout Options with Your Financial Strategy??
Borrowers have payout choices from their loan proceeds with a reverse mortgage. These include a lump sum, monthly installments, a line of credit, or a combination of the three. These choices allow borrowers to target their higher-interest debt in a way that makes sense for their financial strategy.??
Deciding which payout option to choose depends on several factors. Here are a few questions to ask yourself:?
Paying Down Higher-Interest Debt Can Reduce Your Emotional Burden?
Carrying around higher-interest debt can feel burdensome, especially if you watch the balance grow despite your monthly payment. Over time, the stress of mounting bills can create long-term issues in other areas.??
The?National Council of Aging?reports that many seniors make trade-offs because of their debt. Seniors avoid making crucial car or home repairs that may increase fall risks. Others admit to skipping meals, which can have health or nutritional implications.??
A reverse mortgage loan offers one way to pay off bills. The loan could welcome more positive emotions that could make a difference in an individual’s well-being. A reverse mortgage loan works by making one or more payouts to a borrower based on the equity in their home. No monthly mortgage payment would be required in a reverse mortgage loan, although the borrower is required to comply with the loan terms, such as maintaining the home and paying property taxes and insurance. The balance of the reverse mortgage loan increases over time as interest is capitalized to the loan balance. The loan is generally required to be repaid when the borrower sells the home, moves out of the home, or dies.??
Consult with your financial planner to understand how best to approach your debt and the full impact of getting a reverse mortgage on your financial strategy.?
Disclaimer: Seniority is published by Finance of America Reverse LLC. The views expressed in this publication are those of the author alone and do not necessarily reflect the views and opinions of Finance of America Companies. This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional. Additional Disclaimer: These materials are not from HUD or FHA and were not approved by HUD or a government agency. Not all products and options are available in all states. This article is intended for general informational and educational purposes only and is subject to change without notice and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional. When the loan is due and payable, some or all of the equity in the property that is the subject of the reverse mortgage no longer belongs to borrowers, who may need to sell the home or otherwise repay the loan with interest from other proceeds. The lender may charge an origination fee, mortgage insurance premium, closing costs and servicing fees (added to the balance of the loan). The balance of the loan grows over time and the lender charges interest on the balance. Borrowers are responsible for paying property taxes, homeowner’s insurance, maintenance, HOA Fees (when applicable) and related taxes (which may be substantial). We do not establish an escrow account for disbursements of these payments. A set-aside account can be set up to pay taxes and insurance and may be required in some cases. Borrowers must occupy home as their primary residence and pay for ongoing maintenance; otherwise, the loan becomes due and payable. The loan also becomes due and payable, and the property may be subject to a tax lien, other encumbrance, or foreclosure) when the last borrower, or eligible non-borrowing surviving spouse, dies, sells the home, permanently moves out, defaults on taxes, insurance payments, or maintenance, or does not otherwise comply with the loan terms. Interest is not tax-deductible until the loan is partially or fully repaid. This is not a commitment to lend or extend credit. Security National Mortgage Company NMLS#3116. Security National Mortgage Company home office address 433 Ascension Way, 5th Floor, Salt Lake City, UT 84123. Equal Housing Lender
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