Heading into retirement can be a stressful time for seniors. You’ve worked hard, saved money, and are ready for life’s new challenges. A consistent concern among soon-to-be-retired seniors is figuring out how to pay for all of the monthly expenses. For those who are already retired, they often need a few hundred extra dollars a month to pay for medical care, visit family, and simply have a more fun-filled retirement experience.
Managing retirement takes planning and resources. Besides pensions (for the lucky ones), 401k plans, and Social Security, another financial tool known as “reverse mortgages” is available to senior homeowners who have a significant amount of equity in their homes.
Reverse mortgages are a type of loan that allows seniors to take out a portion of the equity in their home (the amount it’s worth above what’s owed) and receive that money as a payment, either over time or as a lump sum. The loan does not have to be repaid unless the homeowner moves or passes away. And, the title to the loan always stays in your name, not the bank, giving you peace of mind.
- Use the money in the way it suits you best. The money from a reverse mortgage can be used for nearly anything, including daily living expenses, travel, support for grandchildren, or other uses on an extensive list.
- You can still provide your heirs with some financial support. Seniors with a considerable amount of equity can have access to capital and still leave money to their heirs. When the home is sold, the estate simply pays off the outstanding reverse mortgage and the remainder of the money goes to the estate beneficiaries.
- These loans don’t require a payment, so they’re very different than home equity loans where you have to maintain a monthly minimum payments.
A popular type of reverse mortgages are known as Home Equity Conversion Mortgages (HECM). Now what exactly does that mean? HECM are reverse mortgage insured by HUD (the federal government housing agency). These loans are available to homeowners 62 years of age or older, although younger spouses can be included on the loan. Additional information and benefits:
- Homeowners are required to receive information from a qualified third party before signing for the HECM loan. Unfortunately, some seniors are persuaded to make poor financial decisions. Using this information resource is a great way to protect seniors and their cash!
- HECM loans give borrowers the income they need that can supplement Social Security and retirement accounts, oftentimes allowing them to stay in their long-term home.
- Lenders should work with borrowers to ensure they can cover the costs of taxes and insurance in retirement.
Important things to understand before taking on a reverse mortgage:
- You still must pay property taxes and homeowner’s insurance payments. The reverse mortgage does not cover these costs.
- There are closing costs that come with reverse mortgages which are similar to those found with traditional mortgage loans, however these can often be included in the loan, so seniors don’t have a big out-of-pocket expense.
- A new option, called Voluntary Life Expectancy Set Asides,” is an amount set aside for payment of current and future property taxes and home insurance by the lender. This cost can be added and included in the loan.
Advice for Senior Borrowers
All of the terms and rates of a reverse mortgage can be confusing. It’s important to work with a lender that can patiently guide you through all of the benefits of a reverse mortgage and be upfront about some of the smaller disadvantages. Never be afraid to ask questions and to have answers in writing if you are concerned about any of the details of your reverse mortgage.
Have questions about how much reverse mortgage capital you can receive? Use this online calculator to insert your specific information and see how much funds you can receive with a reverse mortgage.
Residents of the San Gabriel Valley and North Orange County should look to the experts from Reverse Mortgage Certified for great rates and information about the HECM loan. Visit www.https://reversemortgagecertified.wordpress.com/ to learn more.