Home loans are a tricky subject no matter the age. But borrowing as a senior comes along with some additional considerations, as well as some alternative possibilities for utilizing your equity that are not available to younger homeowners and borrowers. Your mortgage payment may look a bit different than it would if you were a younger borrower, as well as your interest rate and overall loan balance. When it comes to home equity, you also have your spouse and heirs to consider, which may impact how you think about homeowners insurance and life insurance. Here a few things for senior homebuyers to keep in mind as they navigate the home loan process.
Homeowners have all sorts of unexpected expenses that crop up at the most inconvenient of times. That’s why it’s important to plan major purchases far in advance and consider many options for financing these acquisitions. Buying, building, or conducting renovations on a home is one of these planned, long range expenses that it may make a lot of sense to borrow for.
Seniors in particular should be considering homeownership as a potential avenue for retirement investments that will carry the portfolio through these non-working years and leave behind more wealth for your children than stock market alternatives. Real estate and home equity provides the opportunity to increase your peace of mind and standard of living today, on top of this inheritance boost for any heirs you may have.
You may also want to create additional peace of mind and comfort in your current home. Renovation projects often require a large capital reserve that you may not have available. Even if you do have the cash, it often makes more sense to borrow the money from a lender upfront and pay it down over time in order to keep your investments locked into winning asset classes that produce more value than your loan’s interest rate will subtract.
A traditional, brick and mortar bank home loan is one option for funding these purchases or lifestyle upgrades. Eligibility for a standard type of loan is usually expansive and requires your credit score and other financial history data points. That being said, a line of credit for renovations is often even easier to take advantage of. It’s particularly convenient that there is no need for a down payment in order to access this type of financial product; this is simply a straight lump sum loan from the bank.
A mortgage loan is the most common and most readily available form of financing for homeowners seeking to move into a new property. However, a reverse mortgage is an increasingly popular way to tap into your home’s equity for other projects or to purchase a new investment property without the introduction of a new origination fee and other related mortgage loan requirements. Reverse mortgages are loans that utilize your equity stake in the home instead of providing a new line of funding. Essentially, when you take out a reverse mortgage loan, the bank buys back a portion of your ownership stake in the property, allowing you to extract the value in cash in order to fund renovations, a new purchase, or even a well-deserved vacation.
It’s important to note, however, that a reverse mortgage can be a tricky web to navigate. Because you are trading back your built up equity, it’s a good idea to do a lot of research and speak with your family members before pulling the trigger. A reverse mortgage that leaves you with little to no ownership stake in the home can give you immediate access to a major infusion of cash, but leave your family members on the hook for repayment after inheriting your home and financial assets and obligations. While a reverse mortgage can be a greta option, it’s important to make an informed decision before you shift from a traditional mortgage structure and trade back your acquired home equity.
Aside from the ability to free up capital, a reverse mortgage isn’t all risk. Reverse mortgage providers, whether a public bank like Bank of America or a private lender, are bound legally and the terms of your loan will ensure that you or your children won’t owe more than the home’s value in the event of a marketplace price shock. This means that you can enjoy the peace of mind in knowing that your loan amount isn’t a gamble the same way an investment would be.
Home loans represent a tricky, yet navigable matrix of opportunity and choice. Do your research and make the informed decision that best suits you and your family’s needs.