This material is not provided by, nor was it approved by the Department of Housing & Urban Development (HUD) or by the Federal Housing Administration (FHA).
What are The Benefits of a Reverse Mortgage?
A reverse mortgage can be a powerful source of additional income. In most cases, the largest personal asset most retirees have is their home, so why not put it to work for you? If you’re at least 62 years old you can use a reverse mortgage to convert some of your home equity into cash. It’s important to remember that the amount you’ll be eligible for depends on several factors.
With that in mind, here are some of the benefits of reverse mortgages:
- Provides flexible disbursement options (i.e., a lump sum¹ , line of credit, regular payments)
- Proceeds are generally tax-free²
- Generally, they don’t impact Social Security or Medicare payments²
- You can stay in the home without making monthly mortgage payments³
- Funds from a reverse mortgage loan can be used to pay off an existing mortgage
- Closing costs and ongoing fees can be financed with the loan, minimizing out-of-pocket expenses
- Heirs aren’t personally liable if payoff balance exceeds your home’s value
- After the loan is repaid, any remaining equity belongs to you or your heirs
You aren’t required to pay back the loan until the home is sold, you move, or pass away. At that time, the loan must be paid back in full. The only other obligations you’ll have as a homeowner include keeping your home maintained, performing any necessary repairs, and staying current on property taxes and insurance premiums. Otherwise, you’ll risk default.
What are Other Things to Consider with a Reverse Mortgage?
Understanding the features of the reverse mortgage will help take the stress out of your decision-making process. Here are some things to consider:
- There will be closing costs, which can be paid out-of-pocket or rolled into the loan amount
- You may outlive your equity
- If you have to move out for any reason, your loan is due in full
- Value of estate inheritance may decrease over time as proceeds are spent
- As home equity is used, fewer assets are available to leave to your heirs
- Eligibility for needs-based government programs (i.e., Medicaid and SSI) may be affected
If you’re still asking yourself “Is a reverse mortgage a good idea?”, keep the following reverse mortgage information in mind:
Are You Financially Responsible?
The first thing you need to evaluate is how financially responsible you are, and it’s important to be honest with yourself. Why? You can select how you would like
to receive your disbursements. If you select a fixed interest rate mortgage you are limited to
the single disbursement lump sum payment option. This is one, full draw at loan closing and the mortgage does not provide for future draws by the mortgagor. If an adjustable interest rate mortgage is selected, you have five different payment options to choose from and they allow for future draws. Your degree of responsibility can help you determine which form of “payment” is right for you.
Do You Need to Tap into Your Home Equity?
Essentially, if you need the money to cover day-to-day living expenses, a reverse mortgage probably is an excellent option. The proceeds you pull from a reverse mortgage are tax-free⁴ and a reverse mortgage is the only mortgage program that allows you to tap into your equity with a payment optional loan.
How Long Do You Plan on Living in the Home?
Reverse mortgages have up front closing costs, which are rolled into the loan. The longer you live in your home the cheaper the loan becomes because you amortize the costs over a longer period of time.
Does Your Spouse Want to Keep Living in the Home After You Pass Away?
Yes, it’s a difficult conversation to have. Unfortunately, it’s a necessary one. If your spouse or partner wants to keep living in the home after you pass away, they’ll need to be listed as a co-borrower on the reverse mortgage (if they are 62 years of age). If they are not 62, they can be listed as a non-borrowing spouse with all the protections the borrower has, except they cannot access the reverse mortgage proceeds after you pass away.
Do You Qualify?
So, you’ve read through the above reverse mortgage information and decided it’s right for you ― but do you qualify? Before you get the loan process started, take some time to make sure you and your spouse or partner meet the individual requirements for a reverse mortgage. Since reverse mortgages are designed to help seniors stay in their home, there are certain age requirements and other qualifications you and your spouse or partner must meet, including:
- You must be at least 62 years of age⁵
- The house must be your primary residence
- The proceeds from the reverse mortgage must pay off any current liens
- There are financial assessment conditions which must be met
Are you ready to find out if you qualify and want to get the process started? Contact a HomeBridge Reverse Mortgage Loan Originator today.
Learn More About Reverse Loan Mortgages:
¹ The single disbursement lump sum payment option is only available with fixed interest rate mortgages.
² Consult your financial advisor and appropriate government agencies for any effect
on taxes or government benefits.
³ You must live in the home as your primary residence, pay property taxes, homeowner’s insurance, HOA Association dues (if applicable) and maintain the home according to FHA requirements, otherwise the loan becomes due and payable.
⁴ Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.
⁵ If your spouse wants to be an official borrower on the loan, he or she must be at least 62 years of age, too. In the past, some married couples made only one spouse an official borrower on the contract, with an unintended consequence: if the borrowing spouse died first, the reverse mortgage was due and, in many cases, the surviving spouse would lose the home unless he or she could repay the reverse mortgage in full. Fortunately, HUD now has a procedure that can often prevent that problem.