There is no doubt that any homeowner (or any person) will tell you that they could use more money. Whether you are planning a remodel, need to catch up on bills, or simply want some extra cash in your pocket, a reverse mortgage is a viable option worth considering. But before making that decision, it is important to ask yourself a few questions! We’ve compiled four questions to ask yourself as you begin to consider a reverse mortgage.
- Who is eligible for a reverse mortgage?
The first step in considering a reverse mortgage is finding out if you qualify. Reverse mortgages are specifically designed for homeowners who are 62 years of age or older and have a sizeable equity in their home. So if you’re under 62, put this information in your back pocket and come back in a few years!
- What is a reverse mortgage?
Simply put, a reverse mortgage is a loan that pays you the equity in your home without monthly loan payments. Equity is borrowed against the value of the home and delivered to the homeowner in the form of a loan. The current value of the property, the balance of the existing mortgage, and interest rates are all taken into consideration.
- How do you receive payments?
Reverse payments are unique in that you choose the way you receive your funds. There are a few common ways people choose to be paid such as a lump sum (receiving all proceeds at once), equal monthly payments, term payments (equal monthly payments for a set amount of time), or a line of credit that allows you to borrow money as you need. With a reverse mortgage, you’re able to choose the payment option that best suits your current financial situation and needs.
- What happens if I sell my home or I pass away?
In the unfortunate event that you pass away or if you sell your home, the entire loan becomes due. But there are ways to protect you and your children or beneficiaries. Federal regulations exist that require your lender to structure the loan so that the amount doesn’t exceed the value of your home. This means if you or your beneficiaries sell the home, the proceeds for the sale will likely payoff the loan.
Home Equity Conversion Mortgages are non-recourse loans. Individuals with HECM loans and their heirs can never owe more if the sale proceeds are insufficient to pay off the entire loan balance.
When responsibly implemented in the right scenario, a reverse mortgage strategy allows you to turbo-charge your retirement by monetizing a portion of the home’s equity with funds that can be used for any purpose.
Three key benefits include:
- The most flexible home loan repayment schedule ever designed because monthly principal and interest payments are NOT required. Clients must continue to pay ongoing property taxes, homeowner’s insurance, and home maintenance.
- Funds drawn from the reverse mortgage are considered a loan advance, not taxable income. Please consult a tax professional for more information.
- You retain home ownership and title to your home.
We think all mortgage financing options involve important decisions, and even more so with reverse financing. We’re ready to help you learn the benefits and risks of reverse financing by positioning you through education to make informed choices as you consider the value of reverse financing as part of your overall retirement plan.