A reverse mortgage is a type of home equity loan that’s reserved for older homeowners and does not require monthly mortgage payments. Instead, the loan is repaid after the borrower moves out or dies.Reverse mortgages are often considered a last-resort source of income, but they have become a great retirement planning tool for many homeowners. The first federally-insured reverse mortgage — also known as a home equity conversion mortgage, or HECM — was introduced in 1989. These loans allow people who are 62 or older to tap a portion of their home equity without having to move.
benefits of a reverse mortgage
The main benefits of Reverse Mortgages is that you can eliminate your traditional mortgage payments and/or access your home equity while still owning and living in your home. Given the right set of circumstances, a Reverse Mortgage can be an ideal way to increase your spending power and financial security in retirement.
Key advantages and benefits of Reverse Mortgages include:
Flexibility: The Reverse Mortgage is a tremendously flexible product that can be utilized in a variety of ways for a variety of different types of borrowers. Households who have a financial need can tailor the product to de stress their finances. Households with adequate resources might consider the product as a financial planning tool.
Stay in Your Home and Improve Your Immediate Finances: The key to a Reverse Mortgage is that it enables you to live in your home for as long as you want with absolutely no monthly mortgage payments and – in many cases – you can also get access to money to use for any purpose.
Low Risk of Default: Unlike a home equity loan, with a Reverse Home Mortgage your home can not be taken from you for reasons of non-payment – there are no payments on the loan until you permanently leave the home. However, you must continue to pay for upkeep and taxes and insurance on your home. (Furthermore, you may be subject to foreclosure if you live somewhere other than the home longer than allowed by the loan agreement.)
The Reverse Mortgage Lenders have no claim on your income or other assets.
No Downside: With a Reverse Mortgage you will never owe more than your home’s value at the time the loan is repaid, even if the Reverse Mortgage lenders have paid you more money than the value of the home. This is a particularly useful advantage if you secure a Reverse Mortgage and then home price declines.
Tax Free: As a Reverse Mortgage is a loan, the money from it is typically tax-free, whether you receive it as fixed income or in a lump sum.
No Restrictions: How you use the funds from a Reverse Mortgage is up to you – go traveling, get a hearing aid, purchase long term care insurance, pay for your children’s college education, or simply leave it sitting for a rainy day – anything goes.
Flexible Payment Options: Depending on the type of loan you choose, you can receive the Reverse Mortgage loan money in the form of a lump sum, annuity, credit line or some combination of the above.
Home Ownership: With a Reverse Mortgage, you retain home ownership and the ability to live in your home. As such you are still required to keep up insurance, property taxes and maintenance for your home.
Guaranteed Place to Live: You can live in your home for as long as you want when you secure a Reverse Mortgage.
Federally Insured: The Home Equity Conversion Mortgages (HECM) is the most widely available Reverse Mortgage. It is managed by the Department of Housing and Urban Affairs and is federally insured. This is important since even if your Reverse Mortgage lender defaults, you’ll still receive your payments.
Can Preserve Your Wealth: Depending on your circumstances, there are a variety of ways that a Reverse Mortgage can help you preserve your wealth. Some financial planners are recommending Reverse Mortgages to:
Preserve and increase the value of your home equity: If you take your loan amount as a Home Equity Line of Credit, then this Reverse Mortgage Line of Credit grows annually. This locks in your current home value, and your reverse mortgage line of credit over time might be larger than future real estate values if the market goes down.
Maximize wealth: Personal finance can be complicated. You want to maximize returns and minimize losses. A Reverse Mortgage can be one of the levers you use to maximize your overall wealth.
