Mistakes to Avoid with Reverse Mortgages
A reverse mortgage is not free money, even though you are not repaying the loan immediately. Borrowers must see it as a valuable financial retirement tool that can ease off living expenses and improve the quality of their lives.
Of course, you can use the upfront proceeds from your home equity for just about anything you want, but keep in mind that it is a loan advance that will eventually be repaid at some point. For this reason, any homeowner who takes out a reverse mortgage must use it responsibly.
Here are some common mistakes seniors considering a reverse mortgage must avoid.
Signing Application Forms When You Still Have Questions
If there is one mistake you should avoid at all costs, it is appending your signature on an application form without completely understanding the entire process.
No matter how attractive a reverse mortgage is, it carries a certain level of financial risk like every other loan.
Do not sign a form because you feel embarrassed about asking the same question over and over again. Don’t just sign a form because you want to “get it over with.”
This is why it is important to work with an experienced local reverse mortgage specialist who will be willing to explain things to you in a way that you will understand them better.
Using the Fund on Non-Essentials
You can use the proceeds from your reverse mortgage loan to pay medical bills, finance home renovations and repairs, pay off an existing mortgage, or even spoil your grandchildren. You are absolutely responsible for what you define as essential and non-essential, and you have no restrictions on how you choose to spend your funds.
However, going on a spending spree might not be the best use of your retirement funds. It is wiser to spend on a new sports car or a vacation from your personal savings, instead of your home equity.
You risk putting yourself in a bad financial position if you spend your loan too quickly.
Failing to Pay Homeowner’s Insurance and Property Taxes
If you fail to make these mandatory payments, your loan will automatically become due and you will have to repay it in full.
To avoid late payments or defaults on these obligations, it is important not to spend all the loan proceeds and burn through all of your retirement savings.
Consider setting aside some money to enable to you keep up with the ongoing payment of the mandatory obligations.
Not Shopping or Over-shopping
Choosing the very first company that you come across might be a huge mistake. It makes sense to do proper research before choosing a lender. Consider getting at least two or three different quotes so that you can compare the best rates.
But you should equally avoid over-shopping. Talking to too many companies will likely leave you confused. A couple of experienced local reverse mortgage experts are more than sufficient to give you a fair idea of which lender to choose.
Feel free to contact us today if you want to learn more about reverse mortgages. Our home equity professionals will be glad to provide the necessary information to help you get started.
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