Retirees in need of extra cash in retirement should consider getting a reverse mortgage. A reverse mortgage is a great financial tool that enables persons who are 62 and older and who own their own home to create tax free income from their home’s equity without having to sell the home or create a burden of a monthly payment.
Rather than creating a mortgage and associated monthly repayment obligation (as would be the case with a traditional home equity loan), the lender makes payments to the homeowner- either in a lump sum, in fixed monthly payments or via a line of credit. With a reverse mortgage, the homeowner never has to pay off the mortgage until he permanently vacates the home. At this point in time, the proceeds from the sale of the home are used to pay off the reverse mortgage (the balance of which grows over time, while the equity in the home generally declines…in “reverse” of a traditional mortgage).
The beauty of the reverse mortgage is that there are no income requirements and the loan proceeds can be used for any legal purpose, whether it’s for health care, vacations, new car payments, day to day living expenses or otherwise.
How much you can borrow is based on a number of factors, including:
- Borrower Age: Older borrowers will be approved for higher loan amounts (you and your spouse must be at least 62)
- Value of Your Home: The higher the value of the home, the more money you can receive.
- Interest Rates: When rates are lower, reverse mortgage proceeds will typically be higher.
- Program Limits: Reverse mortgages secured under government programs are based on geography, while private reverse mortgages are based on the appraised value of the home.
As with any major financial decision, securing a reverse mortgage is not to be entered into lightly. All reverse mortgages require you to seek professional counseling to make sure you understand all the risks and rewards of this mortgage product.