Let’s create a scenario. You live a relaxing life. You and your spouse live a quiet retirement at home, but you want to do more. This may include traveling around the globe, paying off debts, and making improvements to your home. But the majority of your monthly income is still going to a mortgage payment every month. Enter the reverse mortgage. Is it something you’ve considered?
You may have heard a few misconceptions about the loan, or you may need some more information about what it is and how it works. We’re here to help. Let’s take a closer look at what a reverse mortgage is, the requirements of the loan, and the process of getting one. That way, you can see if it’s right for you and if it can help you start living the retirement you want with access to the equity you’ve worked hard to build.
Reverse Mortgage Requirements and How the Loan Works
To get a reverse mortgage, you or your spouse must be a 62 years or older, and own the home as your primary residence. If you are eligible for the loan, you could qualify to access a percentage of the equity of your home. The loan will not come due until you sell your home, switch residences, or pass away. A great benefit of the reverse is that you keep ownership of the house; you are not signing away your ownership to the lender. Based on your age and other factors, you will get an estimate of how much you will receive from the reverse. You could use this money to pay off bills, go on vacation, boost your retirement plan or, really, use however you want! In addition, the money that you receive from the reverse is tax free, so you won’t lose any of your valued proceeds to Uncle Sam.
Reverse Mortgage Process
The process for getting a reverse mortgage is simple. You are required to attend a third-party counseling to learn about the details of a reverse mortgage and your financial options. Then, you’ll fill out an application with your One Reverse Mortgage licensed specialist. This is followed up by a financial review to make sure you are capable of upholding the responsibilities of the loan, including paying your property taxes and homeowners insurance. After application, you will get an official appraisal and close the loan. After a three-day turnaround period, you’ll receive your funds.
Receiving Your Reverse Mortgage Proceeds
Depending on the kind of reverse mortgage you get, you may have a few options for receiving your proceeds. The first option is a lump sum payment that many people choose to use to consolidate debts or pay for immediate expenses. After you close, you’ll receive all of the money at once. The second option is a line of credit, which is a flexible option if you do not need to use all of the money for anything pressing or immediate. If you do decide to go this route, you can access any of the money at any time. A third option is monthly payments. You can set these up for a given amount of time or throughout the life of the loan. Each month, you’ll receive an amount of your proceeds. Finally, you can do any combination of the three. For example, you can put a portion of your proceeds in a line of credit and receive a lump sum payment for the rest. You can also use your reverse mortgage proceeds to purchase a new home with no required monthly mortgage payment as long as you live there. Just remember you must pay your property taxes, homeowners insurance, and home maintenance costs.
Why Get a Reverse Mortgage? What are the Pros?
So what are the pros of getting this kind of loan? Why should you do it? Think about it like this. If you plan on living in your home for the rest of your life, you may benefit from the equity you have now. The reverse mortgage gives you a unique opportunity to access the equity in your home and use it to build a better retirement plan or have incredible experiences you will always remember. Another benefit is you won’t have to worry about declining home values. When the time comes to sell your home or pay back the loan, and the value of the home is less than the accumulated loan balance, the Federal Housing Administration (FHA) will cover the difference.
If you want to learn more to determine if a reverse mortgage is for you, call one of our licensed specialists for a more comprehensive discussion and a custom mortgage review. We also recommend speaking to a financial advisor.