Real Estate - Get In The Know
Financing
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How Does A Reverse Mortgage Work
For many people over 62, a reverse mortgage is the best thing since sliced bread. It gives you the ability to receive tax-free income from the equity of your home without making payments. You get to keep ownership of the property and the loan is not due until you leave the home or die. This money can be used however you like, to supplement retirement income, to make repairs, pay off other expenses, or take a trip and live out your golden years. There are some dangers to consider.
You have several different options to receive the proceeds of the loan. You can get fixed monthly payments for a fixed amount of time or for as long as you live in the home; a lump sum, a line of credit, or a combination of these. The majority of people choose to receive a line of credit. Keep in mind that with the line of credit or lump sum, when the money is gone, it is gone (unless you refinance your loan). A disadvantage to monthly payments is that they do not take inflation into account. You will receive the same amount over the years, even though your expenses will most likely increase.
The more valuable your home is and the amount of equity in it makes a different in the amount of money that you receive. Your age also plays a role. Even if you still owe something on your home, you may be eligible for a reverse mortgage. Your current loan must be paid off. It can be paid off by the reverse mortgage or if you have other funds available. As long as the amount of your current loan is less than or equal to the amount of the reverse mortgage you’ll be okay. If you sell the house and pay off the mortgage, anything that is left goes to you or your estate. You will never owe more than the house is worth.
Reverse mortgages can be complicated and difficult to understand. Most people are required to receive counseling. Counselors must make sure you understand the program and have gone over any other options that may be available to you. P