In recent years property values have soared, while investment
returns have been modest. This has created a situation where a
lot of seniors are finding themselves in the position of being
house rich and cash poor. These cash strapped seniors are
looking for ways to increase their retirement income while
continuing to live in their homes. These retirees find that
their options are limited, and in most cases require them to
risk their home. Enter the reverse mortgage, which can provide
many advantages over these other less desirable options.
No Payments With Reverse Mortgages
The biggest advantage of a reverse mortgages is not having to
make payments as long as you continue living in your home. In
fact, this is the number one reason that seniors choose to
borrow reverse mortgages. Almost 80% of reverse mortgage
borrowers use a reverse mortgage to pay off their current loans
in order to eliminate their house payments. Let's say you owe
$50,000 on your first mortgage and borrow $80,000 with a reverse
mortgage. This would pay off and eliminate the payment on the
first mortgage and provide you with $30,000 to use as you please.
Live in Your Home as Long as You Like
The second advantage of reverse mortgages is the ability to live
in your house as long as you like. The great thing about this is
the amount you owe on the reverse mortgage can never be more
than the house is worth. Let's say you live to 115 and have
selected to recieve a $300 a month payments for life from the
reverse mortgage. The amount received from the reverse mortgage
payments could be substantially higher than the value of your
home, yet the amount owed will still only be the value of the
home. In this situation, FHA insurance will cover the difference.
Reverse Mortgage Withdrawal Options
Another advantage of reverse mortgages is the different
withdrawal options that a you are able to choose. These options
include lump sum distributions, line of credit, monthly
payments, or any combination of these three. So if you were
eligible to borrow $100,000 on a reverse mortgage you could
select to receive $30,000 up front to cover current expenses,
and hold the rest as a line of credit that you can use whenever
you need it. This flexibility of reverse mortgages can
significantly improve you financial independence during
retirement.
Tax-Free Nature of Reverse Mortgages
Another advantage of reverse mortgage is the tax-free nature of
the loan proceeds. The American Bar Association guide to reverse
mortgages advises that generally the IRS does not consider loan
advances to be income. This means that all the money from the
proceeds of the reverse mortgage end up in your pocket.
With these features, reverse mortgage are definitely an option
to consider if you are looking for ways to supplement your
current income. As with any financial decision, you should seek
the advice of a trained professional, a reverse mortgage
counselor, to evaluate and determine if a reverse mortgage is
right for your situation.
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