• Benefits of a Reverse Mortgage

  • by Kristen Curzytek

Imagine what life would be like without making another required mortgage payment.  Think of the financial freedom that would give you. Reverse mortgages have helped many homeowners 62 and older enjoy a better retirement. Here are some other benefits many older homeowners are enjoying with their reverse mortgage.

No monthly mortgage payments – One of the most important benefits for people 62 and older who choose to take out a reverse mortgage is the elimination of their current monthly mortgage payment.* If you owe anything on your current mortgage, the reverse mortgage pays off that loan and if there are any proceeds left after it’s paid you receive tax-free** cash. For people 62 and older living on a fixed income, eliminating that monthly financial burden can be life changing. However, you are still required to maintain the home and remain current on taxes and insurances.

You still own your home – The most common misconception with a reverse mortgage is that the bank is now the owner of your home. That is simply not true. Title on a reverse mortgage is no different than any other mortgage you’ve ever had – only the homeowners are on the title.***

Currently no credit score or income requirements – Currently with a reverse mortgage there are no income requirements and your credit score is not taken into account for the reverse mortgage loan. Loan options like a traditional home equity line of credit requires income and credit score information. That’s why the reverse mortgage may be a clear choice for older Americans who have low income or credit score issues.

Insured by the Federal Government – A government-insured reverse mortgage is safe and secure.  Reverse mortgages that are backed by the federal government guarantee you will receive your equity. If you decide to take your equity in a line of credit, there is no risk that your available line of credit will be withdrawn.

You can still leave your home to your heirs – If you plan on leaving your home to heirs, you can still do so even if you have a reverse mortgage. If your heirs choose to keep the property, they will have to refinance the entire amount of the existing mortgage balance regardless of the home’s appraised value. If your heirs choose to sell the property and the proceeds exceed the value of the home, they can keep the difference. For cases where the proceeds are insufficient to pay off the loan, then the lender absorbs the difference.

Does not affect your Social Security – The proceeds from a reverse mortgage do not affect your Social Security, Medicare or pension benefits.***8 However, if you are on Medicaid, any reverse mortgage proceeds that you receive must be used immediately. Funds that you retain would count as an asset and could impact Medicaid eligibility. We recommend that you consult your financial advisor to get a complete understanding of a reverse mortgage and your benefits.

Different loan options – You have different loan options with a reverse mortgage:

  • Fixed
  • Line of Credit
  • Purchase

Check out the reverse mortgage products page to learn more about each product option.

Improve your quality of life – As mentioned earlier, a reverse mortgage pays off your current mortgage, eliminating your monthly mortgage payment and eliminating the worry of trying to make that payment each month. Imagine not having to make that monthly mortgage payment. If you have additional equity after your first mortgage is paid off, you receive that equity in tax-free** cash which you can use any way you wish. You can select to receive your payments in five different ways:

  • Lump-sum
  • Term payments – Equal sum of money for a fixed period of months or years.
  • Tenure payments – Like term payments but they do not end until you no longer occupy the home.
  • Line of credit
  • Combination of any of the above payment methods. For example, partial lump sum with the remainder paid to you monthly.

A reverse mortgage is a financial tool that can help you enjoy your retirement. If you are worried about your finances or are afraid you do not have enough cash flow to pay monthly bills, a reverse mortgage could be a good compliment to your retirement planning.

*Homeowner is still responsible for taxes, insurance and property maintenance.

**Please consult with your financial advisor.

***You remain responsible for counseling costs, taxes, insurance and maintenance costs.

****May affect SSI or Medicaid. Please consult with your financial advisor.