Reverse Mortgages – Get All The Facts First
The Federal Trade Commission advises every homeowner to get all of the facts before cashing in the equity in their home. This is sound advice since are so many lenders and there are no two homeowners with the same needs.
With increasing longevity and especially in times of a weakening economy and shrinking retirement funds, many seniors are seeking extra funds to:
- finance a home improvement
- pay off a current mortgage
- supplement their retirement income, or
- pay for healthcare expenses.
And many homeowners are turning to “reverse mortgages” for this funding.
This permits older homeowners to cash out part of their home’s equity without having to pay it back until the home is sold. The can stay in their home and let their home start paying them.
In a regular mortgage the borrower makes monthly payments to the lender. But in a “reverse” mortgage, you receive money from the lender and generally don’t have to pay it back for as long as you live in your home. Instead, the loan must be repaid when you die, sell your home, or no longer live there as your principal residence. Reverse mortgages can help homeowners who are house-rich but cash-poor stay in their homes and still meet their financial obligations.
To qualify for most reverse mortgages, you must be at least 62 and live in your home. The proceeds of a reverse mortgage (without other features, like an annuity) are generally tax-free, and many reverse mortgages have no income restrictions.
There are three types of reverse mortgages.
Single-purpose reverse mortgages – which are offered by some state and local government agencies and nonprofit organizations.
Federally-insured reverse mortgages – known as Home Equity Conversion Mortgages (HECMs) and which are backed by the U. S. Department of Housing and Urban Development (HUD).
Proprietary reverse mortgages – which are private loans that are backed by the companies that develop them.
The qualifications and benefits of each of these will be covered in future posts. Stay tuned to see how your home can help supplement your retirement and make it truly golden.
