People often ask “What is a reverse mortgage?”. A reverse mortgage is a loan that allows you to get funds from the available equity in your home. You’ll continue owning and living in the the home while receiving your home’s equity in tax-free payments.
It is an excellent financial tool for retirement planning. Some seniors have enough funds but would still like to use their equity in a strategic way.
The loan becomes due if the borrower :
- Dies
- Sells or transfers the home
- Does not comply with loan terms
- Does not pay the property taxes or insurance
- Leaves the home for more than 12 consecutive months
If you or your heirs choose to keep the home, the reverse mortgage loan can be paid in other ways (refinancing, conventional mortgage loan…).
Reverse Mortgage Benefits
These are only a few of the many benefits of a reverse mortgage.
1 – You maintain the ownership of your home
A lot of people think that the lender takes ownership of the home. Wrong. You remain the owner and there’s no foreclosure risk as long as you comply with the terms of the loan, pay taxes and insurance and keep basic maintenance and repairs.
2 – No monthly mortgage fees required
One of the most attractive benefits of reverse mortgages is that payments are made TO you.
3 – No taxes
All incoming funds are tax free. This is because reverse mortgages are considered loan proceeds, not taxable income.
4 – You are safe from market declines
The reverse mortgage loan is insured by the federal government, which means greater security. The government insurance will cover the difference if the loan ends up amounting to more than the value of your home when sold.
5 – Many disbursement options
You receive the funds in a full or partial sum, a monthly payment, a line of credit or a combination of any of these.
You can use them :
- Paying off existing mortgages
- Paying for medical bills
- Making home repairs and improvements
- Paying property taxes and insurance
- Having fun and enjoying retirement
- Increasing monthly cash flow
- Helping family members
- …
