One of the key benefits of a reverse mortgage is having the option of not having to make a monthly mortgage payment if you do not want to. You can make a prepayment to your reverse mortgage at any time for any amount you choose. There are no prepayment penalties if you choose to do so. Below are some scenarios that better describe situations in which someone might want to make a prepayment to a reverse mortgage.
Pay the interest and principal to avoid the loan from growing – A reverse mortgage is a type a loan which means that interest will accumulate on the loan. So let’s say that you get a reverse mortgage of $100,000, and you decide to make the interest payment to the loan every month so the balance does not increase. That interest payment will likely be less than the mortgage payment you have on the home. So you will save money because the interest payment is less than your mortgage payment and since you are paying the interest you helping the loan from growing.
Cannot qualify for refinance, reverse mortgage the next best fit – For those with bad credit scores and are unable to qualify for a refinance a reverse mortgage is a perfect alternative. Currently with a reverse mortgage credit score is not a requirement for the loan. The homeowner then can make payments to the reverse mortgage loan and typically the interest rate on the reverse mortgage loan is lower than the interest on their traditional mortgage. The homeowner can work towards paying the loan off and at a pace that works for them since if they miss a month it’s not an issue since a payment is not required.
Leave your home to your heirs without a balance to pay off – Your heirs have options with your home when it comes to your reverse mortgage. One option your heirs will have is keeping your home. If you heirs choose to do so they will have to refinance 95 percent of the home’s value or the balance of the loan, whichever is lower. If you continue to make prepayments toward the loan you could potentially pay off your mortgage.
Supplement Social Security – Making just an interest and principal payment monthly to your reverse mortgage will typically be much smaller than your traditional mortgage payment. You can save possibly hundreds of dollars a month which can be used to supplement your everyday expense. You may even use those funds to delay collecting Social Security. In some cases delaying Social Security benefits can increase the amount you are eligible for. Consult your financial advisor beforehand to be sure it fits your situation.
Remember that everyone’s situation is different and the reverse mortgage program is not right for everyone. One of the key benefits of the reverse mortgage program is not being required to make a required monthly mortgage payment. However, if you want to do so while you have your reverse mortgage loan, you are always welcome to do so.
Kristen Curzytek is a writer for Retiring Wise. Give us a call at (800) 401-8114 to talk to one of our licensed professionals. They can discuss your financial situation with you and determine if a reverse mortgage makes sense for you and your financial goals.