Reverse mortgages are a popular option for retirees to access their home equity without selling their property. The loan is secured by the home’s equity and is repaid when the home is sold or the homeowner passes away. Monthly payments are also an option for reverse mortgages, in addition to lump sum or line of credit payments. This post will explore the advantages and disadvantages of making monthly payments on your reverse mortgage.
Pros of Monthly Payments on Your Reverse Mortgage:
- You can reduce the amount of interest you pay over time.
By making monthly payments on your reverse mortgage, you can reduce the amount of interest you pay over time. The longer you have a reverse mortgage, the more interest you’ll pay since it accrues on the loan balance. Monthly payments can reduce the balance and lower the amount of accrued interest.
- You can control how much equity you retain in your home.
By making monthly payments, you can slow down this process and retain more equity in your home over time.
- You can avoid a balloon payment at the end of the loan term.
If you opt out of making monthly payments on your reverse mortgage, you’ll receive the loan amount in a lump sum or line of credit. When the loan matures, you’ll have to pay back the full balance, including interest accrued. However, making monthly payments can help you avoid a balloon payment at the end of the loan term and make the repayment process more manageable.
Cons of Monthly Payments on Your Reverse Mortgage:
- You may have to make payments for the rest of your life.
Making monthly payments on your reverse mortgage has a disadvantage: you may have to make payments for the rest of your life. This can be burdensome for retirees living on a fixed income with limited resources.
- You may not have enough income to cover the monthly payments.
Another disadvantage of making monthly payments is that you may not have enough income to cover the payments. If you are living on a fixed income, you may find it challenging to come up with the additional funds needed to make the monthly payments.
- You may not be able to access your equity as quickly.
Finally, making monthly payments may limit your ability to access your equity as quickly as you would like. If you need to tap into your equity to cover unexpected expenses, you may not have as much available if you are making monthly payments to reduce the loan balance.
Therefore, making monthly payments on your reverse mortgage can reduce interest, control retained equity, and avoid balloon payments. However, weigh pros and cons carefully based on personal finances. Consult a financial advisor or reverse mortgage specialist for guidance.