Knowing if you are ready for a reverse mortgage is an important step. You may ask yourself, “Is a reverse mortgage a good idea in California?” It can be a hard decision to make. There may be some instances where a reverse mortgage is not the right fit for you. Your counselor will let you know if you don’t fit the mold for the average reverse mortgage borrower, and may suggest other alternatives. Below are some of those options.
When You Can Wait
Some people think that the only question to ask is, “Can I qualify for a reverse mortgage?” But waiting a few more years can pay dividends. Part of a reverse mortgage is calculated based on your age, and the older you are, the more money you are likely to get. Another factor is interest rates. If the market has low rates, that can end up giving you an extra $20,000 in your pocket for every 5 years. Of course this depends on the value of your home. On the other side of the coin, you may want to take out an HECM loan if rates are likely to rise. Be careful not to wait too long though as an HECM can give many borrowers a new sense of financial freedom.
Consider a State Loan
There are certain state loans that may work similar to an HECM — such as a deferred payment loan. But many of these home loans can only be used for certain purposes. Typically for repairs that need to be made. Reverse mortgages can be used for any purpose you wish.
If You Are Selling Your Home
This may be a no brainer, but you can sell your home and downgrade to something that is easier to maintain. Use the extra money to live off of. If you are planning on moving soon, selling your home is a good choice. This is based on the equity you have in your home though, you need to have enough to buy a new home, and have something left over. If you are living in an average home in Riverside, you probably aren’t going to get enough money to buy a condominium in Manhattan Beach. Do your due diligence if you expect to retire in a different area.
Another option that people do is come up with an agreement to rent out your house, and live off of those funds. This is usually a deal between family or someone close to you. This kind of arrangement isn’t the most traditional route, but it may workout for you.
If You Share a Space
Perhaps you can do without the extra money you’d receive from an HECM loan. Maybe you are just looking to cover your basic needs to supplement your Social Security. Maybe sharing a home is the way to go for you. If you know anyone with some extra space that is looking for a little help, you can work out an arrangement. Many seniors end up moving in with their adult children, but this could possibly mean a huge lifestyle change, and requires some major planning.
Having another payment to make can be a hassle, but perhaps you can refinance with a forward mortgage. If you can get reduced payments a forward mortgage give you the extra spending money you are looking for. Adjustable Rate Mortgages (ARMs) provide borrowers with the lowest interest rates, and that equals lower monthly payments. Remember, forward ARMs interest rates adjust often. You can get a good interest rate one year, and have it spike the next. If you aren’t comfortable with unpredictable interest rates, this may not be the best option.
A Home Equity Line of Credit is also another option, giving you a way to cash in on your equity right away. The downside is that these loans usually have high interest rates over the life of the loan, and you may have increased payments setup after a specified time period.
Think About Public Assistance
Public assistance can get a bad wrap. Many people would rather do a whole lot of refinancing before taking public assistance to get the help they need, even if it’s not their best option. But don’t be ashamed, there are all kinds of ways that you can benefit from public assistance. Their are programs for seniors to help with medical expenses, meals, prescriptions, and transportation among other things. A great resource for these programs includes eldercare.gov, and the National Council on Aging. Both websites are easy to navigate, and have simple questionnaires to help you find the help you are looking for.
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