Is a Reverse Mortgage Right for You?
If you are looking for a way to have a more comfortable retirement, in your current home or in a new home in a great retirement spot, a reverse mortgage may be a way to help finance it.
The Basics
Not everyone understands how a reverse mortgage works, but here are the basics.
If you are age 62 or better, own your own home, have enough equity in it and plan to stay in it during retirement, then you can probably qualify for a reverse mortgage and withdraw money for retirement (or anything else). Your credit score, the length of time you have lived in your home and your annual income do not matter.
The Benefits
**You can eliminate your current mortgage payments.
**You can withdraw tax-free cash to use however you wish. This may come in the form of a lump sum, a line of credit or a monthly cash advance.
**You keep ownership of your home until you permanently leave it.
How It Works
With a regular mortgage, you make monthly payments, decreasing your loan amount and thereby building equity in your home. The bank makes its money via the interest you pay it every month.
With a reverse mortgage, the bank loans you money based on the equity you have in your home. This loan amount is added to any current principle, and the total loan amount grows as interest is added to it. The loan is repaid, and the bank makes its money, when the home is sold after you leave it, whether through death, moving in with a family member or going into a care facility.
So instead of making its money at the front of the loan, the bank makes it at the back of the loan. Reverse mortgages also have a non-recourse clause, meaning that even if the loan amount is higher than the home’s sales price, your heirs are not responsible for the difference.
There are some things of which to be aware. For example, if a husband and wife are listed on the reverse mortgage document, then both must be age 62 or better (or a surviving spouse may lose the home if his/her spouse dies).
You must maintain the house, and you must continue to pay taxes and insurance on it.
Your heirs will not be able to keep the home unless they repay the loan in full when you leave the home.
Reverse mortgage interest is not deductible, and a meeting with a government approved housing counselor is required before applying for a reverse mortgage.
A reverse mortgage is not for everyone, but for many people, it can be a financial lifesaver.
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