|

The Reverse Mortgage: How does it work?

I don’t know about you, but when I first learned of the term reverse mortgage I imagined the bank handing you a check with their hand out for the keys. Wow, was I wrong!

In this post, I will share with you what I discovered about this incredible asset.

What is a Reverse Mortgage?

A reverse mortgage loan (also known as a Home Equity Conversion Mortgage) is a way for people aged 62 and older to convert a portion of their home equity into tax-free cash. Essentially, you are given a percentage of the value of your home on loan to use at your will.

bungalow clouds dawn dusk
Photo by Pixabay on Pexels.com

Reverse Mortgage Myths

The name “reverse mortgage” can be misleading. Here are two common myths that are NOT TRUE.

  1. You are giving up the title to your house.
  2. The lender will take your house.

How does a Reverse Mortgage work?

To qualify, first the person must be the age of 62 or older. Second, they must live in the home as their primary residence. The loan amount given to the home owner is determined by the age of the youngest borrower, or eligible non-borrowing spouse, plus the current appraised value of the home, and interest rates at the time of borrowing.

*The home owner is still required to pay property taxes, insurance, and maintenance costs.

Photo of walk-in shower upgrade

How can you use the funds from the loan?

  • Pay off your mortgage
  • Make and preserve retirement savings and investments
  • Pay for home modifications to age in place (installing a walk-in shower, elevator, ramps, etc.)
  • Use it to pay to downsize (purchase a smaller home, apartment, condo, or move into a community)
  • Pay for Long Term Care Insurance
  • Pay for Home Health Care
  • Travel
  • Pay bills
    • Medical
    • Home Maintenance
    • Insurances

What happens after the death of the loan recipient?

There are many options that the family can choose from:

  • Family can sell the home, pay off mortgage loan and receive the difference.
  • The loan is insured through HUD to protect heirs if the house cannot sell for enough to pay off the loan; therefore, if the family is unable to successfully sell the home, they can walk away from house and loan with no penalties.
  • If the family would like to keep the house, they just need to pay off the loan.

The reverse mortgage is under utilized!

I must admit, prior to researching this post, I did not realize what a great asset the reverse mortgage is for those over 62.

In conclusion, if you are qualified for this type of loan, I highly recommend speaking with your tax or financial advisor for more information.

Similar Posts