What is a Reverse Mortgage?
A reverse mortgage is a type of loan that enables seniors to borrow against their home’s equity. They can receive the funds as a lump sum, through regular monthly payments, or on an as-needed basis.
Repayment of the reverse mortgage is required when the borrower:
- Passes away (heirs must repay the loan if they want to keep the property)
- Lives outside the home for more than 12 months (unless a co-borrower or eligible spouse remains)
- Sells the home
- Fails to pay property taxes and homeowners insurance
Many seniors use reverse mortgages to supplement their retirement income. These loans can help reduce housing costs, increase cash flow, or pay for home repairs or improvements, as no monthly payments are required.
Pros and Cons of Reverse Mortgages
Reverse mortgages come with both advantages and disadvantages, much like any other loan. Knowing the benefits and potential pitfalls of reverse mortgages can help you make an informed choice for your financial future.
There are many positive aspects of reverse mortgages that are often highlighted, and this information is generally accurate. Reverse mortgages can offer several benefits, such as:
- Providing additional funds for retirement
- Allowing you to stay in your home without the need to sell it for liquidity
- Helping you pay off existing loans
- Reducing your tax liabilities since the money isn’t considered taxable income
However, lenders may not always be upfront about the potential downsides. Some of the cons of reverse mortgages include:
- Risk of foreclosure if you cannot keep up with property taxes and other fees
- Reducing the inheritance you can leave to your heirs
- Incurring fees for closing the loan
- Possibly affecting your retirement benefits like Medicaid or Supplemental Security Income (SSI). If you receive a lump sum that exceeds the federal asset limit and don’t spend it within the month, you might lose your benefits.
Reverse mortgages can be complex, so it’s important to thoroughly understand how they work before making a commitment. Being well-informed about both the pros and cons will help you make a more confident decision.
CONCLUSION - REVERSE MORTGAGES
A reverse mortgage can be a valuable financial tool for seniors who have substantial home equity and want to enhance their retirement lifestyle. By providing access to the accumulated value in their homes, retirees can achieve greater financial security and meet their evolving needs. However, it is essential for potential borrowers to thoroughly research and understand the terms, costs, and implications of a reverse mortgage, and ideally, consult with a financial advisor to make informed decisions that best suit their individual circumstances.
IMPORTANT INFORMATION:
At the end of the reverse loan term, some or all of the property’s equity won’t belong to the borrower, and they may need to sell or transfer the property to repay the proceeds of the reverse mortgage. The Loan servicer could add an applicable reverse mortgage origination fee, mortgage insurance premium, closing costs, or servicing fees to the balance of the loan which will grow, along with the interest, over time. Interest isn’t tax deductible until all or part of the loan is repaid. Failing to pay property taxes, insurance, and maintenance might subject the property to a tax lien, foreclosure, or other encumbrance since the borrower retains the title.
All loans subject to underwriter approval; terms and conditions may apply. Subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.
Contact the Joseph Small and Team to learn more about using a Reverse Mortgage.
Equal Opportunity Lender. We are pledged to the letter and spirit of the United States policy for the achievement of equal housing opportunity throughout the nation. We encourage and support an affirmative advertising and marketing program in which there are no barriers to obtaining housing because of race, color, religion, sex, handicap, familial status, or national origin.
The information provided herein has been prepared by a third party company and has been distributed for education purposes only. The positions, strategies or opinions of the author do not necessarily represent the positions, strategies or opinions of Patriot Pacific Financial Corp or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.