Benefits of A Reverse Mortgage
Reverse Mortgages: Benefits of Them
As you age, your financial needs may evolve due to several factors such as changes in health or income. A reverse mortgage allows homeowners over 62 to tap into the equity they have built up in their home over the years. It is an excellent financial strategy to improve your financial security, and there are many benefits to using a reverse mortgage.
What Are the Primary Benefits of a Reverse Mortgage?
The primary benefit of a reverse mortgage is that you receive money that you can use to meet your financial needs in retirement. The money you receive from a reverse mortgage can be accessed in several ways. This includes a lump sum, a line of credit, or a series of payments. The money received from a reverse mortgage is tax-free and does not affect social security or Medicare benefits.
Another benefit of a reverse mortgage is that you do not have to repay the loan if you live in your home. The loan only becomes due when you no longer live in your home. This means either because you sold your home, move out permanently, or pass away. If you meet the terms of the loan, you can stay in your home, maintain ownership, and enjoy the benefits of the reverse mortgage.
How Does a Reverse Mortgage Work?
A reverse mortgage works by allowing homeowners to convert the equity they have built up in their home into cash. The amount you can receive depends on several factors, including your age, the value of your home, the interest rate, and the amount of equity you have. Reverse mortgages are also called home equity conversion mortgages (HECMs).
When you take out a reverse mortgage, you are borrowing against the equity in your home. Instead of making monthly payments to repay the loan, the lender makes payments to you. The loan balance increases over time as interest accrues and the payments accumulate. The loan becomes due when you no longer live in your home because you sell your home, move out permanently, or pass away.
How Much Money Can I Get from A Reverse Mortgage?
The amount of money you can receive from a reverse mortgage depends on several factors, including your age, the value of your home, the interest rate, and the amount of equity you have. The older you are and the more equity you have in your home, the more money you can receive.
In general, the maximum amount you can receive from a reverse mortgage is 80% of the appraised value of your home. This can vary though depending on your age, the interest rate, and other factors. The amount you can receive is also limited by the loan limit established by the Federal Housing Administration (FHA).
Are There Any Fees Associated with Getting a Reverse Mortgage?
Yes, there are fees associated with getting a reverse mortgage. Some of these fees include loan origination fees, appraisal fees, and closing costs. The fees associated with a reverse mortgage can vary depending on the lender and the type of loan you choose.
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Benefits of a reverse mortgage
If you’re a senior looking to reduce expenses or have extra income, you may have come across a product known as a reverse mortgage. Reverse mortgages are a funding source available only to homeowners who are 62 or older. Like other home equity options, such as home equity loans and home equity lines of credit (HELOCs), reverse mortgages allow you to tap into the equity in your home. However, theyre are some unique benefits of a reverse mortgage.
You can receive reverse mortgage funds as a lump sum, line of credit or monthly payments. These funds are tax-free, and you’re not required to pay the lender back as long as you stay in the home, making this the rare loan that pays you rather than the other way around.
Sound intriguing? If so, read on to learn about benefits of a reverse mortgage.
Would you reap benefits of a reverse mortgage, see what you could qualify for here.
Is a reverse mortgage worth it?
As with any financial product, reverse mortgages come with pros and cons. Here are three of their biggest benefits.
It can provide cash flow
You can use a reverse mortgage for anything you like — there are no restrictions. If you choose a lump-sum payment or line of credit, you’ll have a large amount of cash at once for expenses like paying off debt or making your home more accessible. If you opt for monthly payments, you’ll have regular supplemental income for things like daily living expenses or long-term care.
Compare your reverse mortgage options online now.
It can eliminate your monthly mortgage payment
Benefits of a reverse mortgage. With most loans, you must begin paying back the lender once you receive the funds. That’s not the case with reverse mortgages.
If you owe a balance on your mortgage, you must first use the reverse mortgage funds to pay off that balance. You’ll get a lower amount in cash as a result. However, it also means you’ll no longer have monthly mortgage payments. This sets it apart from home equity loans and HELOCs, which require repayment either immediately or within a certain number of years.
Your reverse mortgage comes due if you sell the house, move or die — at which time, your heirs must pay it back, either out of pocket or with the home’s sales proceeds.
Note: You will need to continue paying property taxes and home insurance. If you fail to do so, the lender may foreclose on your home.
It’s tax-free
The IRS does not consider reverse mortgage funds income, even though you can use them as income. Instead, it considers them loan proceeds, so you won’t owe any taxes on them as long as you still own and live in the house.
Should you sell the house, you may be able to deduct the interest when you pay off the loan. To do so, you must have used the funds for an IRS-approved reason — namely, to “buy, build, or substantially improve the home that secures the loan.”
Check your reverse mortgage eligibility here.
The bottom line
When deciding benefits of a reverse mortgage, it’s important to weigh the advantages and disadvantages. For example, while it can give you much-needed cash, you risk losing your home if you can’t keep up with property taxes and home insurance payments. Do your homework, compare your options and contact a mortgage specialist if you need additional guidance. MONEYWATCH: MANAGING YOUR MONEY. BY KELLY ERNST. CBS NEWS.
Brought to you for educational purposes by Scott Underwood at Reverse Mortgage Alabama (205) 908-2993 Birmingham or (888) 220-0393 Statewide or email Scott@ReverseMortgageAlabama.com for information on how you can use a Reverse Mortgage to supplement your retirement plans or a Reverse Mortgage purchase to buy a home.
