As numerous Americans plan for retirement and rely on alternative sources of post work income, one that may come to mind is a reverse mortgage. The concept of a reverse mortgage is rather simple: a person pays you, based on the value of your home. There are various options available as to how you wish to receive this money. You might choose to take monthly payments, take a lump sum, or receive a line of credit.
When you purchased your home you probably needed to make mortgage payments. As you did, you slowly decreased the cost of debt owed and gradually increased the amount of equity in your home. Reverse mortgages are the opposite. As time goes by, you gradually take in more and more money from the lending company.
The objective of a reverse mortgage is to have an added source of income, especially if you’re prepared on selling your home closer to the end of your life or after you die. It allows you to receive the equity from your home and enjoy it in retirement. The amount you receive in the reverse mortgage is based on the value of your home, current interest rates, and your current age.
Once you’ve received the amount your home has been determined to be worth, less any fees charged by the lender, you will owe that amount to the lender. You can pay that back any way you wish, but in numerous cases, the idea is to sell your home and repay the debt. Usually, this is done by an estate after a person passes away and still has debt. As long as you’re permanently living in your home, you don’t need to pay the lender back.
Reverse mortgages hold a lot of details and can get confusing, which is why it’s best to ask a financial professional for advice before looking into them any further. While they might have a lot of technical details, they do not have many requirements. In general, you must be 62 years of age or older, and own your own home. Those are the two basic requirements of a reverse mortgage. Beyond that, there are a few other basic things to keep in mind.
Reverse mortgages do have costs upfront, just like a regular mortgage. They also have monthly service fees. However, all of the money you get from the lender is tax-free. To get a better estimate of how much a reverse mortgage would pay you, it’s a good idea to meet with a financial professional.
Unfortunately, reverse mortgages are not for everyone. Reverse mortgages can provide a valuable resource to people when the circumstances are right, but there are many considerations to be taken before choosing one, including: costs, restrictions, estate planning considerations, need for income, other assets, health considerations, insurance coverage, and so on.
Usually a reverse mortgage is a last resort for income for most individuals and many individuals decide that reverse mortgages aren’t for them. And in a lot of situations, for example, if you want the house to stay in your family for many generations, then it may not be for you.
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