We speak constantly about gettting out of debt. Owning a home outright with no debt whatsoever. So why would anyone want to get involved with a reverse mortgage? The first step is to understand what a reverse mortgage is.
A reverse mortgage requires a lender to pay you in installments. These payments can be used for immediate cashflow purposes such as retirement income. The amount of money a person can take out depends on the home’s appraised value, the amount of equity in the home, and a persons age. If you are older, and have more equity in your property, you can then take out more money.
A reverse mortgage does not require a person to make payments to the lender. The individual maintains title. Payments such as taxes and other expenses related to homeownership need to made by the homeowner. The money extracted from the home will need to be repaid upon the death of the homeowner. A person must be age 62 to qualify. The home cannot have any existing large liens on the property.
There are some benefits and drawbacks to using a reverse mortgage. The benefits include immediate tax free income, which do not affect other retirement benefits such as social security or other programs. The cash flow can be like a guaranteed annuity to provide income for the remainder of a person’s life. The money can be used for anything and there are no financial requirements to be made.
The negative aspects must be evaluated as well. The reverse mortgage can be very expensive as interest compounds and increases the amount to be paid back. This is not a good option for someone looking to move. The equity in your home will be used up which leaves nothing for any survivors.
A reverse mortgage should only be considered if all other retirement solutions have been exhausted. This means not having sufficient assets in place to pay for living and other expenses.
Is a reverse mortgage in your plans? I’d appreciate your feedback.
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