What Can a Reverse Mortgage Be Used For?

Eligible homeowners can access the net worth tied up in their homes and use it as an additional source of cash flow. A reverse mortgage, especially the type insured by the Federal Housing Administration (FHA), is a powerful financial tool that seniors can use to live more comfortably for the rest of their retirement lives.

A huge plus with reverse mortgages is that borrowers are not required to make monthly mortgage repayments. The loan only comes due when the borrower moves out, sells the property, or passes away.

Of course, the loan balance includes interest and other fees but millions of seniors have used their home equities to make their retirement period more enjoyable and free from financial worries.

Common Uses of Reverse Mortgage Loans

There is no restriction on how you can use the money from a reverse mortgage. What you decide to spend your loan on is entirely up to you but it is usually best to put the money to good use.
Some of the common uses include:
  • Paying off in-home care
  • Paying off an existing mortgage
  • Reducing monthly mortgage payments
  • Increase personal savings or create an emergency fund
  • Make home repairs and finance renovations
  • Consolidate debts
  • Supplement retirement income
  • Purchase a new home
  • Keep your home equity from losing value
  • Living expenses
  • Helping the grandkids with college
As a borrower, you must always remember that a reverse mortgage is a loan, even if you are not required to pay it back immediately (as obtained with traditional mortgages). Therefore, it is in your best interest to treat the funds as a loan advance.
Here are two crucial questions every intending borrower should consider when deciding what to do with their fund.
  1. Can personal savings cover the cost of what you want to buy?
  2. How big of a dent will your spending create in the amount of your equity?

If you determine that your savings are not enough to cover the cost of a purchase, perhaps it is probably best to let it go until you can afford to comfortably afford the particular item, service, or experience.

Spending a huge chunk of your reserve mortgage on any particular item might put you in a tight financial spot and make it difficult for you to meet your other financial obligations.

The Homeowner’s Responsibilities

Qualifying for a reverse mortgage is one thing; abiding by the loan terms is another important aspect necessary to enjoy the full benefits of the program.

You have accomplished a lot if you have completed the third-party counseling, meet the various requirements, and proceeded to access the converted equity of your home. Use the money in whatever way you wish, but it is important to remember that you have responsibilities as the homeowner.

Taking out a reverse mortgage loan does not strip you of the ownership of your home. The title of the property is still in your name, meaning you have to stay up-to-date with all obligatory payments.

Your responsibility as a homeowner includes:

  • Keeping the home in good condition at all times. That means you have to spend money on repairs and maintenance. Thankfully, this is one of the common uses of a reverse mortgage loan.
  • Promptly pay homeowner’s insurance, property tax, and other applicable fees.
  • Live in the home as your primary residence.
The loan can become due for repayment if you default on these obligations. That means, even if you have not sold the house, moved out of it, or passed away, the lender will require you to pay the loan in full once you fail in your responsibilities.

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