How to Use a Reverse Mortgage to Get Out of Debt

Reverse Mortgage

Reverse mortgages have become more popular in recent years, especially as millions of Americans consider ways to help them pay for their retirements.  One such option is to use a reverse mortgage to help get out of debt.  While it might sound odd to advocate taking on debt to get out of debt, it is not a new approach.  In fact, debt consolidation loans have been around for years.  

The only difference with using a reverse mortgage is that you won’t need to make monthly payments.  But don’t get lulled into thinking that a reverse mortgage is free money – it’s not and these loans are not for everyone.  With that in mind, here are some tips on how to use a reverse mortgage to get out of debt.

Have a Plan

First, you need to have a plan.  While this applies to almost every sort of debt consolidation loan, it is especially important when discussing reverse mortgages.  There are several reasons for this, including how you will manage the fees and how much equity, if any, will remain in your home.

In terms of fees, you will need to have a plan to come up with closing costs for your reverse mortgage and then to figure out how to manage the accrual of interest over the life of the loan.  

As such, using a reverse mortgage for debt consolidation is usually a good bet when you don’t plan to spend more than a couple of years in your home, or you have no heirs.  In the case of the latter, you can consider maxing out your loan as the bank will simply sell your house and use the proceed to pay off the amount due.  

This brings us to a question of how much equity will remain in your home.  Keep in mind that getting a reverse mortgage means the issuing bank will pay off your existing mortgage before you can access any additional funds.  As such, using a reverse mortgage might not be a good idea if you have a high mortgage balance because there won’t be much in the way of equity to apply to paying down your debt.

One more issue is making sure you pay off your debt with the funds received from a reverse mortgage.  For this reason, you should make a COMPLETE list of debts and the balance due.  This way you can issue payment as soon as you receive your payment from your reverse mortgage.

How Using a Reverse Mortgage for Paying Off Debt Works

As mentioned, the plus of using a reverse mortgage is that you won’t have any monthly payment after receiving the loan amount. However, you will need to pay off your existing mortgage and you should have list of your outstanding debts so that you can pay them off as soon as possible.

How does this work?  It’s quite simple, you will take the proceeds and then use them to pay off your creditors.  Given that some of the balances might be large, you will want to check with your bank to confirm how long it will take for the payment from your reverse mortgage to clear and what steps you will need to take the transfer payment to your creditors.

This is important as some banks will hold large amounts coming into your account for verification or they will require additional steps to transfer payments over $5,000.  As such, you want to make sure you know the process first.  

Why Would a Reverse Mortgage Make Sense?

There are several reasons why getting a reverse mortgage to free yourself might make sense.  These include lower interest rates, no monthly payments, and the ability to get completely out of debt today.

However, you want to make sure you have completely reviewed this option before signing on the dotted line.   This is because getting a reverse mortgage to free yourself from debt will probably mean that you will have little or no equity left in your home.

Again, this is not a big deal if you expect to sell your home in the next couple of years.  But if you expect to live in your home for a long time and you lack the finances to pay for retirement, then you will need to come up with options to make sure you don’t go back into debt down the road.

As you can see, using a reverse mortgage to get out of debt can make sense.  But this option is not without its risks and it will behoove you to look at all the factors before deciding whether this is the right approach for you.

 

Some posts you may want to check out:

Do stores owe you Money?
What is Tai Lopez’s Net Worth
What is Jimmy Tatro’s Net Worth

Photo: GotCredit

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How to Use a Reverse Mortgage to Get Out of Debt

Reverse Mortgage

Reverse mortgages have become more popular in recent years, especially as millions of Americans consider ways to help them pay for their retirements.  One such option is to use a reverse mortgage to help get out of debt.  While it might sound odd to advocate taking on debt to get out of debt, it is not a new approach.  In fact, debt consolidation loans have been around for years.  

The only difference with using a reverse mortgage is that you won’t need to make monthly payments.  But don’t get lulled into thinking that a reverse mortgage is free money – it’s not and these loans are not for everyone.  With that in mind, here are some tips on how to use a reverse mortgage to get out of debt.

Have a Plan

First, you need to have a plan.  While this applies to almost every sort of debt consolidation loan, it is especially important when discussing reverse mortgages.  There are several reasons for this, including how you will manage the fees and how much equity, if any, will remain in your home.

In terms of fees, you will need to have a plan to come up with closing costs for your reverse mortgage and then to figure out how to manage the accrual of interest over the life of the loan.  

As such, using a reverse mortgage for debt consolidation is usually a good bet when you don’t plan to spend more than a couple of years in your home, or you have no heirs.  In the case of the latter, you can consider maxing out your loan as the bank will simply sell your house and use the proceed to pay off the amount due.  

This brings us to a question of how much equity will remain in your home.  Keep in mind that getting a reverse mortgage means the issuing bank will pay off your existing mortgage before you can access any additional funds.  As such, using a reverse mortgage might not be a good idea if you have a high mortgage balance because there won’t be much in the way of equity to apply to paying down your debt.

One more issue is making sure you pay off your debt with the funds received from a reverse mortgage.  For this reason, you should make a COMPLETE list of debts and the balance due.  This way you can issue payment as soon as you receive your payment from your reverse mortgage.

How Using a Reverse Mortgage for Paying Off Debt Works

As mentioned, the plus of using a reverse mortgage is that you won’t have any monthly payment after receiving the loan amount. However, you will need to pay off your existing mortgage and you should have list of your outstanding debts so that you can pay them off as soon as possible.

How does this work?  It’s quite simple, you will take the proceeds and then use them to pay off your creditors.  Given that some of the balances might be large, you will want to check with your bank to confirm how long it will take for the payment from your reverse mortgage to clear and what steps you will need to take the transfer payment to your creditors.

This is important as some banks will hold large amounts coming into your account for verification or they will require additional steps to transfer payments over $5,000.  As such, you want to make sure you know the process first.  

Why Would a Reverse Mortgage Make Sense?

There are several reasons why getting a reverse mortgage to free yourself might make sense.  These include lower interest rates, no monthly payments, and the ability to get completely out of debt today.

However, you want to make sure you have completely reviewed this option before signing on the dotted line.   This is because getting a reverse mortgage to free yourself from debt will probably mean that you will have little or no equity left in your home.

Again, this is not a big deal if you expect to sell your home in the next couple of years.  But if you expect to live in your home for a long time and you lack the finances to pay for retirement, then you will need to come up with options to make sure you don’t go back into debt down the road.

As you can see, using a reverse mortgage to get out of debt can make sense.  But this option is not without its risks and it will behoove you to look at all the factors before deciding whether this is the right approach for you.

 

Some posts you may want to check out:

Do stores owe you Money?
What is Tai Lopez’s Net Worth
What is Jimmy Tatro’s Net Worth

Photo: GotCredit

Enjoy Plunged in Debt?

Pid

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