Working with many seniors I find that they all have one primary concern: where am I going to get money?? The money for groceries, for home improvements, money for bills, money for insurance , etc. And they all seem to ask: “What do you know about a reverse mortgage“?
Long and Short: It allows you to use the the equity in your home as a source of income. This can be extremely attractive for retirees on a limited income. It was developed to provide income for living expenses as well as healthcare. However, monies can be used at your discretion.
There are a few things to know when considering a reverse mortgage:
Reverse mortgage is essentially a cash advance. Money is payable to you either in a lump sum or periodic withdrawals. However, the reverse mortgage does accrue interest and will have to be paid back (generally the burden will fall on your children). The payments do not have to be paid during the term of the reverse mortgage. Instead, you or your estate will pay off the principal plus the accrued interest. For example, when you die the reverse mortgage will have to be paid off all at once…. often times your heirs could get up to 12 months after death to buy or sell the home.
PLEASE NOTE: The interest can really skyrocket the amount to be repaid.
For instance, if you took a reverse mortgage at age 62 and live in the house until you’re in your 80s, then the interest accrued could leave very little equity in your home. This is especially problematic when elders go from their home to a long term care facility.
Here are a questions you might have:
Do I still own my home: Yes. You still own your home. Note: You will still be responsible for property taxes, upkeep, etc.
Can I refinance a reverse mortgage? Yes but there are limitations. You have to wait at least 18 months before refinancing. The amount that would be available to you would has to be 5X the cost to refinance. NOTE: If they wish to keep the home, they either have to pay the full loan balance or 95% of the appraised value, which ever is less!
Do I have to pay taxes on the amount I receive from reverse mortgage? No. Since the income received is a loan, it is non-taxable. NOTE: When you (or likely your heirs) payoff loan, the interest is tax deductible at that time
What if I still have a mortgage, can I still get a reverse mortgage? No. You have two options: 1) payoff traditional mortgage prior to taking reverse mortgage, or 2) commit part of the proceeds from the reverse mortgage to extinguishing the traditional mortgage.
Below you will find a video from National Reverse Mortgage Lenders (NLMA) explaining reverse mortgages: