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Tags: finance, home equity loans, understand the reverse mortgage options
 Close your eyes for one moment and imagine this scenario: You’re about 75 years old and you stay up nights wondering how you can make ends meet. It could be because your retirement planning didn’t go too well, or major things happened that really ate into your finances but regardless of the reason let’s say that you don’t have any savings worth mentioning.
And now let’s say that like a number of older persons in this country, you’re property rich. If that is the case you can actually get a line of credit that you can draw upon to pay your bills through what’s called a reverse mortgage. If you or someone you know fits this scenario, then you may want to understand the reverse mortgage options available.
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Let’s start with the basics. Like the name implies, a reverse mortgage is a loan that is exactly the opposite of a traditional one. Instead of making monthly payments, you’re the one getting them. You are turning your home equity into cash that you can use. Eligibility is simple—you need to be at least 62 years of age, have your name listed on the home’s certificate of title, and must occupy said home as a principal residence for the majority of the year.
Eligible home units include single family, one-to-four units, townhomes, detached homes, condominiums, and even some manufactured or new constructed homes. There are two types of reverse mortgage loans available—the Home Equity Conversion Mortgage or HECM and the private mortgages. HECM loans are federally insured by the U.S. government through HUD and FHA, while with a private loan the lenders assume the risks.
A reverse mortgage is a non recourse loan which means that if you are the heir of people who took out such a loan you are not liable for repaying the loan should the borrower pass away. Instead, the estate is given one year in order to sell off the property so that the selling price pays off the amount that was borrowed.
At the same time, the money received from this loan is tax free—you can take is a lump sum, as monthly payments, or as a line of credit. It also does not affect social security or Medicare. It may however, affect Supplemental Security Income and Medicaid. In the case of Medicaid, since it looks at your assets and income before deciding to pay for your care, if you do get money from a reverse mortgage, you may wind up being ineligible for Medicaid.
And typically there are caps as to the appraised value of your home which in turns affects the amount you will be getting—this would be between 50 to 70 percent. And yes, appraisal fees, origination fees, and insurance premiums get taken off the top, lowering the amount you will get.
And getting one is quite expensive, and the amount increases every month, with the fees ranging from 8 to 10 percent of your home’s value. Getting a reverse mortgage may not be for you. However, it has been shown that the income generated by such a loan helps senior citizens live independently and financially safe.
If you are interested in getting one, you should get in touch with a reputable lender and/or loan counselor who can analyze your family’s needs and help you decide if a reverse mortgage is the right one for you.
About the author
The author of this article Rick Goldfeller is a successful underground Financial Analyst who has been advising and coaching individuals for many years. Rick recently published a book on how to manage your money and attract Wealth and Financial Freedom. More info on his Finance Planning course is available HERE.
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