- This type of loan is typically only available to elderly individuals. In the United States, it is called a reverse mortgage and you have to be at least 62 years old before you can get a loan. With a lifetime mortgage, you set up the loan and then the mortgage lender provides you with a monthly payment or gives you a lump sum based on the equity in your house. The loan is not repaid during your lifetime but is paid back when you die.
- This type of loan could be repaid in a number of ways. For instance, if you die with a life insurance policy, your beneficiaries could use the money from the policy to pay off your mortgage debt. In some cases, your beneficiaries may sell the house to generate enough money to pay off the loan. Some people simply have enough money in their estate to pay off the remainder of the loan balance upon their death.
- Before taking out this loan, it is important to find out the costs that are involved. Many of these loans come with large closing costs that can significantly eat into your home's equity. The lender may charge an origination fee, points and other types of closing costs during this process. The lender will give you a good-faith estimate that includes all of the closing costs for you to review before signing up for the mortgage.
- Even though a lifetime mortgage is an easy way to supplement your income during your retirement years, it also has a few potential drawbacks for you to consider. For instance, if you were planning on leaving your beneficiaries something after you are gone, this can change those plans. Your beneficiaries will have to worry about paying off the lifetime mortgage instead of enjoying their inheritance. You also have to consider that you are putting your house at risk if you do not keep up with the property insurance and tax requirements that come with most of these loans.
How Lifetime Mortgages Work
Paying off the Loan
Costs
Considerations
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