Using a Home Equity Conversion Mortgage for Added Income: The Pros and Cons
Owning your own home has many immediately obvious benefits, like the comfort of privacy and the opportunities, there are for customizing and improving it with upgrades and additions. It’s also a plus to not have to share walls with neighbors, as one might in an apartment, townhome, or duplex, having reduced noise and traffic to interrupt your day. There are, however, many other, less well-known perks of homeownership, particularly the option of using the equity of the house for income through a reverse mortgage.
Understanding equity: the value hidden in your home
Home equity is essentially the market value of your home. You can read more about equity through this link: https://www.investopedia.com/terms/h/home_equity.asp When shopping for your forever home, you probably took care to get a professional appraisal for it before you came up with an offer to submit to the seller. An appraisal from an expert takes into consideration what other homes nearby, and similar in size and build, are selling for. This ensures the buyer makes a reasonable and fair offer, regardless of any added value the seller may believe their changes have contributed. Property values fluctuate with changes and trends in the real estate market, but often, over time, homes appreciate in value.
Earning equity for your home and growing the value can come from simply the current forecast of the real estate market, but there are also ways for homeowners to increase it themselves with the right advice and resources. Buying a house and offering a down payment of 20% or more instantly adds equity to the home. You can also earn added value by making careful and professional grade improvements, like adding square footage. Often, simply adding a bathroom can generate thousands of dollars in value and even more for bedrooms. Sometimes earning equity for your home is as simple as letting the market trends do the work for you, and the value will appreciate on its own.
You have access to untapped funds just sitting within the walls of your home with its equity. A home equity conversion mortgage channels the value of your house into payments that can offer you more financial freedom than you may have thought you’d ever have. Read on to see the full picture, and decide for yourself if you can benefit from a reverse mortgage converted from your home’s equity.
How a reverse mortgage can tap into your home’s equity for monthly payments directly to you
A reverse mortgage allows for homeowners to tap into the value of their house for monthly payments. Creating this line of credit as another source of income can alleviate some of your financial stress should you find your finances stretched thin due to unexpected medical bills, or simply allow you to do more with your free time once you’ve retired from the workforce. Using this in place of retirement or SSI payments, you can keep your home while earning income to live on, meaning the 80% of homeowners in America that are 65 and over, as recorded on this site, have options for supplementing or adding to their income. This can give you the bolstered income needed to take a trip you’ve been planning, make some changes to your home, or pay off other outstanding debts, the money is yours to do with as you see fit.
With any line of credit, there are, of course, pros and cons to consider. Many facets of a reverse mortgage using a home’s equity are beneficial, or pros. Having additional income without having to worry about the requirements of a day job is an enormous pro. You also can use it however you would like and can wait until the market values swing in your favor before opting for a reverse mortgage. Getting help from experts in this field is important to ensure you get the most value for the loan conversion.
Consider the benefits and act with confidence
A few of the cons to keep in mind are things such as what happens to the line of credit when the loan owner passes away. If you have family you wish to leave your home to, the reverse mortgage will need to be paid back. This doesn’t necessarily mean you have to saddle your loved ones with debt, however. Another option for repaying the loan is to sell the house. Assuming the reverse mortgage amount was fair and accurate, the sale of the home will be more than adequate for completing the loan and closing the account. You also don’t have to wait to pay back the reverse mortgage, should you find another income source or gain access to other funds that may have been unavailable before, leaving the home free and clear to be left to family members or loved ones.