If you are among the 65% of Americans who are either unable to save any of their annual income or who save very little, you are probably worried about being able to retire. By freeing up money you invested in your home, a reverse mortgage is a type of loan that can not only help you retire sooner, but it also comes with additional benefits.
What Are the Benefits of a Reverse Mortgage?
- Being able to stay in your home.
- The money borrowed is tax-free.
- Monthly payments are not required.
- The ability to use the money to pay off your existing mortgage or health expenses, or other emergencies.
- You choose how you receive your payments.
- Some of the costs associated with reverse mortgages, like interest payments, are tax-deductible. Consult a tax specialist for additional charges that may be tax-deductible.
- Heirs inherit the home and keep any remaining equity after the balance of the reverse mortgage is paid off.
Reverse Mortgage Details:
Unlike a conventional loan, a reverse mortgage is a loan only for homeowners 62 and older. It’s based on the equity you have built up in your home, and the lender pays YOU. You might be able to get a reverse mortgage through private lenders or state and local governments; however, the most common reverse mortgage by far is a Home Equity Conversion Mortgage (HECM). The Federal Housing Administration(FHA) insures this loan. This loan allows you to defer payment of the loan until you move or sell the house, or when you pass away. Your loan balance is deducted from the proceeds of the sale when it comes due, and you or your heirs will get any money left over. Because HECM’s are non-recourse loans, you or your heirs are not responsible for repaying any loan balance that exceeds the net-sales proceeds of your home; the FHA insurance purchased with your HECM loan would pay the extra overage. Besides the age requirement, there are several other requirements for taking out a reverse mortgage, as well as obligations that are associated with it. Check with your lender or Consumer Financial Protection Bureau for more information on eligibility requirements and responsibilities.
How Much Money Can I Get with a Reverse Mortgage Loan, and What Are My Payment Options?
The amount of money you can borrow with a reverse mortgage loan, the principal limit, is calculated using your age, the interest rate on your loan, and the value of your home. With a HECM reverse mortgage, it generally works out that older borrowers with more equity in their homes and a lower interest rate will receive higher principal limits.
You have flexible payment options with your Home Equity Conversion Mortgage.
You can receive:
- A line of credit with an adjustable interest rate that you will pay only on the money you use.
- Monthly payouts, either for a set number of years or for as long as you maintain the loan; this also has an adjustable interest rate requiring payments only on the money withdrawn.
- A Lump sum that has a fixed interest rate: With this option, the cost to you will be higher since your interest payments are on a higher amount.
If you would like to retire sooner, but are worried about finances or having to leave your home, a reverse mortgage might be the perfect solution to your retirement anxiety.