If you are retired or approaching retirement, there is a huge possibility that you have prepared for this period in your life ahead of time. However, with the ever increasing cost of living and longer life expectancy, many people find themselves coming up short on funds required to cater for their needs as they approach golden age.
What is the solution? How do you get funds to stay afloat? For some, a reverse mortgage might be the best way to securing a comfortable retirement.
Reverse Mortgage: the perfect retirement plan
A reverse mortgage is a way for homeowners who are 62 years old and above to take advantage of the equity in their home. With a reverse mortgage, a homeowner who owns their home completely, or at least has a significant amount of equity to draw from, can withdraw some of their equity without having to repay it until they eventually leave the home.
You may be shocked at how a reverse mortgage works. Why would someone want to borrow against a home they worked tirelessly to pay off? In this article, I’ll reveal to you what a reverse mortgage is and the benefits it comes with.
What is Reverse Mortgage?
A reverse mortgage is simply a loan that let homeowners ages 62 and above, who have settled their mortgage, to borrow a portion of their home’s equity as a tax-exempted income. Unlike a normal mortgage in which the homeowner makes payment to the creditor, with a reverse mortgage, reverse is the case.
Homeowners who consider this kind of mortgage don’t have a monthly payment and don’t have to sell their home (put differently, they can continue to stay in it). However, the loan must be paid back when the borrower kicks the bucket, permanently moves out or decides sell the home.
There are several types of reverse mortgage. However, one of the most common of them all is the Home Equity Conversion Mortgage (HECM), which is funded by the Federal Government.
What are the Benefits of Reverse Mortgage?
- Money you receive is tax-exempt
When you are planning on how to manage retirement income in a tax-efficient way, a reverse mortgage can be of help. You won’t have to pay taxes on the money you get in payment from the lender. In addition, since the IRS deems a reverse mortgage a loan, and a real income, it also won’t be regarded in formulas that use your income, like impacts to your Social Security including your Medicare benefits.
- Constant income during retirement
Provided you stay in the home, using it as your main residence, you can get constant income during retirement. For some retirees who face challenges to meet their living expense, a reverse mortgage can come to their rescue.
How much you can borrow to meet these needs hinges on the age of the youngest borrower, current interest rate, including the value of the home. The amount of equity you have in the home is considered if you have only paid down a significant amount rather than owning the home completely, based on FHA.
With a reverse mortgage set up, you can decide to receive equal payments for the rest of your life, or as long as you reside in the home.
- You are protected if the home loses value
The reverse mortgage loan is insured by the federal government. This simply means that, if the loan ends up totaling to more than the value of the home when sold, the government insurance will cover the difference. So the loan will be paid completely using just the proceeds your home sells for, and nothing more.
- The home remains yours
A prevalent misconception of reverse mortgage is that the lender becomes the owner of your home. This is untrue. You continue to remain the owner of your beautiful home, provided you adhere to the terms of the loan and pay your property taxes and homeowner’s insurance.
Contact our office if you have questions regarding a reverse Mortgage, or if you need the help of an attorney in setting up a reverse mortgage. Our attorneys are experienced and versed in matters reverse mortgage and can help in ensuring that it doesn’t affect your estate plan.