What is Reverse Mortgage?
(I call it home equity release)
If you are looking to supplement your retirement income, and you are 55+ years old, you can use your home’s equity to do so. A reverse mortgage is a simple, smart way to access the wealth you’ve built in your home. This advance financial solution allows you to stay in the home you love, and only pay down your mortgage when you decide to move, sell, or otherwise cease to occupy your home.
How Does Reverse Mortgage Work?
A reverse mortgage allows you to access tax-free cash (it is proceeds of loan) from the equity in your home, without having to sell. Between the age of 55 and older are eligible for Reverse Mortgage. Seniors can access up to 55% of the value of their home, while continuing to own 100% of their home and retaining control.
Unlike a traditional mortgage, a reverse mortgage requires no regular principal or interest payments. Instead, an interest rate is charged, and interest is simply added to the mortgage balance. The loan becomes due when you and your spouse no longer occupy the property.
How Can the Funds from a Reverse Mortgage Be Used?
Thousands of 55-year-old or older are accessing wealth in their homes through a reverse mortgage. They are using the funds for things like:
- Boosting retirement income and overall standard of living
- Through the direction of accountant, you may pay less tax
- Doing home renovations
- Paying for travel or leisure experiences
- Paying off debts
- Providing a living inheritance to loved ones
- Financing health and live-in care expenses
- Purchasing a new home
- Or perhaps take advantage of Reverse Mortgage Line of Credit
Home Ownership and Repayment
When you take out a reverse mortgage, you keep the ownership of your home. No regular payments are required, and as long as you keep up your obligations like paying property taxes and home insurance, and keep your home in good condition, you’ll never have to move out until you’re ready.
Moreover, because of the Non-Recourse Loan that comes with a reverse mortgage, no matter what happens to home prices, the amount you ultimately have to repay will never exceed the fair market value of your home. Even better, if your home appreciates, or rises in value, the appreciation is yours to keep (most of the time your property appreciates).
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Eligibility Requirements for a Reverse Mortgage
In order to be eligible to apply for Reverse Mortgage, you need to be at least 55 years old, and own your home. If your spouse or partner is also on title to your home, they must also be in Reverse Mortgage application. The following factors are usually assessed when you apply for a reverse mortgage:
- You and your spouse’s age
- The property should be your primary residence
- The type of dwelling (condominium, detached house, townhouse, etc.)
- The condition of the home
- The home’s appraised value
Unlike traditional mortgages, your income or credit score is not a major contributor to your eligibility for a reverse mortgage, as long as you can afford to pay for things like property taxes, home insurance and maintenance.
As you can see, reverse mortgages are pretty simple. If you meet the eligibility requirements, obtaining a reverse mortgage is an easy process.
There’s No Place Like Home When You Retire
As a homeowner, you made a smart decision a long time ago, and have worked hard over the years to take care of your property. If you are like most homeowners, you’ve likely built a significant amount of equity and wealth in your home over time. The tricky part is being able to access that wealth without having to sell your home. A reverse mortgage makes it possible for you to access the wealth you’ve grown, while staying in the home you love.
Making a Decision
Before taking out a reverse mortgage, you should consider the pros and cons.
Benefits
Reverse mortgages offer the following benefits:
- You can access some of the value and equity (up to 55%) in your home without having to leave the home you love.
- You never have to make regular loan payments during the loan term.
- Because it is a loan from equity of your house, you don’t need to pay income tax .
- The borrowed money does not affect the retirement plans (such as 401k, IRA) or Social Security benefits you may now receiving.
- You maintain ownership and control of your home.
- Taking advantage of Reverse Mortgage Line of Credit.
- Requirements to apply are not stringent and easy to apply.
- With Reverse Mortgage you can purchase your primary house and never pay mortgage payment.
Some of the Considerations
Now that you know the benefits, it also helps to explore some other factors to think about.
- A reverse mortgage is sometimes subject to a slightly higher interest rate than a traditional mortgage because there are no regular payment requirements.
- The mortgage balance will grow over time with interest, so the amount you need to pay when you move out will be larger than the balance you receive today.
- When you cease to occupy your home – whether because you sell it or pass away – the loan will need to be repaid.
As long as you know the pros and cons associated with a reverse mortgage, you will know what to anticipate and how to make a decision that works for you and your family.
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