Mortgage Programs

How to use a reverse mortgage to better your life:

The reverse mortgage could well be one of the most misunderstood solutions in financial planning today.  It could be the silver lining you have been looking for.

It is astounding how many misconceptions have cropped up over the years about this innovative financial tool.  As you read on you will see what a reverse mortgage is and how positively it can change your life.

Understanding reverse mortgages:  Month after moth, for years, you faithfully send in your mortgage payments.  Between these payments and the increase in your home’s market value, you have likely ended up with a sizeable amount of equity.  Chances are, it is not doing a whole lot for you now if it is just sitting there idle.

A reverse mortgage is a loan that lets you tap into the equity of your home to generate tax-free cash.  Instead of building equity by paying money into your home, you can think of a reverse mortgage as taking equity out of your home.  You are using money that you have accumulated while purchasing your home and having it appreciate in value.  So, in a sense, your home is paying you back.

In some ways, a reverse mortgage is like a home equity loan.  You get money to use as you wish, and you do not lose control of your home.  However, there are significant differences. Traditional equity lines require monthly repayment of either principal and interest or just interest.  With a reverse mortgage, there are no monthly mortgage payments during the life of the loan.  In fact, you will not have to pay back a reverse mortgage if you do not want to, unless you either sell your house or pass away, at which time the loan is repaid.

With a home equity line, the borrower must qualify based on credit history and income.  A reverse mortgage, on the other hand, requires no income qualification and only a minimal credit check.  Almost anyone who is 62 or older with equity in their home may qualify.

The money you receive from a reverse mortgage can come in the form of a lump sum payment, a line of credit, a monthly payment, or a combination of these options.

Myths and Misconceptions:

It is surprising how many people think that home owners who take a reverse mortgage sign away their home.  That is the first myth, and it is absolutely untrue.  The title and the responsibilities of home ownership stay with the homeowners. They must pay the taxes and homeowner’s insurance, and take reasonable steps to maintain their property.

The second myth is that you could end up owing more than your home’s value.  That is also untrue.  Even if you live to be 120 and even if, when you die or sell your home, the real estate market is at an all-time low, you still cannot owe one penny more than what your home sells for.  Bankers call this a “non-recourse loan”, meaning that your reverse mortgage can never leave your heirs in debt.

Other reverse mortgage advantages include the following: From an IRS perspective, the money you get with a reverse mortgage is viewed as “loan advances” and is therefore tax-free (consult your tax advisor).  This alternative income source will not affect your regular Social Security or Medicare benefits.  If handled properly, a reverse mortgage may not affect your eligibility for Medicaid.  We recommend that you consult your attorney for an opinion regarding your specific situation.

Another significant point is that you do not have to divulge to us or anyone else what you intend to do with the money you receive.  Maybe you want more financial security and can use the cash to ensure it; want to buy long-term care insurance or upgrade your medical coverage; make much-needed home improvements; help a grandchild with college expense; or simply live more comfortably.  No matter what the purpose, if cash from a reverse mortgage can help, it is yours to do with as you please.

Another important benefit is that you can defer loan repayment over a long period of time.  It is only after the second spouse dies or sells the house that the loan becomes due.  So, a reverse mortgage is one way that a husband, for example, who predeceases his wife can make sure that she will be able to stay in their home for as long as she chooses.

What if one or both of you need to go to an assisted-living facility?  Would you lose your home?  It only becomes an issue if neither of you lives in the house for 365 consecutive days.  If either of you spends even one night in the home during the course of that year, you re-set the clock for another whole year.  If neither of you can live there for over a year, chances are you likely want to sell the house anyway rather than deal with its upkeep.

If you are a senior and a homeowner, you may qualify.  All you need in order to qualify for a reverse mortgage is to be 62 or older and own you own home.  You do not even have to own it free and clear.  The older you (and your spouse, if you are married) are the larger possible dollar amount you can receive.

Learn how much you qualify for.  The size of the reverse mortgage you qualify for depends on your age at the time you apply for the loan, the type of reverse mortgage you choose, the value of your home, current interest rates, and sometimes where you live.  In general, the older you are the less you owe on your home, the larger the reverse mortgage loan may be.

So how much does it cost?  The costs of a reverse mortgage include the origination fee, interest, and the kinds of typical costs that are associated with a traditional mortgage, such as appraisal and title insurance.  The good news is that all loan costs can be funded in the loan so there are no out of pocket expenses for the borrower.  As we said earlier, nothing needs to be paid back to the lender until after the homeowner(s) permanently leave the home.

Great Ideas for using a reverse mortgage:

Although only those 62 years old and older can use a reverse mortgage, some are using them to finance a new venture or expand their existing business.  Knowing that the loan does not have to be paid, relieves the financial pressure on the business venture.

Contact us and we can tell you how much you may receive from a reverse mortgage.