Reverse Mortgages: Benefits of Them
As you age, your financial needs may evolve due to several factors such as changes in health or income. A reverse mortgage allows homeowners over 62 to tap into the equity they have built up in their home over the years. It is an excellent financial strategy to improve your financial security, and there are many benefits to using a reverse mortgage.
What Are the Primary Benefits of a Reverse Mortgage?
The primary benefit of a reverse mortgage is that you receive money that you can use to meet your financial needs in retirement. The money you receive from a reverse mortgage can be accessed in several ways. This includes a lump sum, a line of credit, or a series of payments. The money received from a reverse mortgage is tax-free and does not affect social security or Medicare benefits.
Another benefit of a reverse mortgage is that you do not have have monthly mortgage payments like a traditional mortgage. The loan only becomes due when you no longer live in your home. This means either because you sold your home, move out permanently, or pass away. If you meet the terms of the loan, you can stay in your home, maintain ownership, and enjoy the benefits of the reverse mortgage until you no longer occupy the home.
How Does a Reverse Mortgage Work?
A reverse mortgage works by allowing homeowners to convert the equity they have built up in their home into cash. The amount you can receive depends on several factors, including your age, the value of your home, the interest rate, and the amount of equity you have. Reverse mortgages are also called home equity conversion mortgages (HECMs).
When you take out a reverse mortgage, you are borrowing against the equity in your home. There are no required monthly mortgage payments while you live in the home. The loan balance increases over time as interest accrues. The loan becomes due when you no longer live in your home because you sell your home, move out permanently, or pass away. You are still responsible to pay the property taxes and home owners insurance while you live in the home.
How Much Money Can I Get from A Reverse Mortgage?
The amount of money you can receive from a reverse mortgage depends on several factors, including your age, the value of your home, the interest rate, and the amount of equity you have. The older you are and the more equity you have in your home, the more money you can receive.
The amount you can receive is also limited by the loan limit established by the Federal Housing Administration (FHA).
Are There Any Fees Associated with Getting a Reverse Mortgage?
Yes, there are fees associated with getting a reverse mortgage. Some of these fees include loan origination fees, appraisal fees, title/mortgage insurance and closing costs. The fees associated with a reverse mortgage can vary depending on the lender and the type of loan you choose.
