A reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM), is a type of loan that allows homeowners (62 or older) to convert part of the equity in their homes into tax-free income. Reverse mortgages can be a great financial tool for many homeowners; however, it is a very important financial decision. So how do you determine if a reverse mortgage is right for you?
You may benefit from a reverse mortgage if:
You want to eliminate your monthly mortgage payment.1 If you still have a traditional mortgage on your home, replacing it with a reverse mortgage will eliminate your monthly mortgage payment. This may increase your cash flow and help supplement your retirement savings.
You need access to money but want to age in place. A reverse mortgage may be ideal for you if you want to remain in your home and are looking for an extra source of funds. You can use the funds from a reverse mortgage any way you want to, and no payment is due until you permanently move out of the home or fail to meet the loan obligations.1
You want to supplement your retirement income. If your retirement income is going to fall short of covering your expenses, a reverse mortgage may be able to provide some relief. You can even choose to receive your reverse mortgage proceeds in the form of monthly payments – this may allow you to live more comfortably within your monthly budget.
You want to set up an emergency fund. If you are concerned about how you are going to handle a large unexpected expense, you may be able to use a reverse mortgage to set up a line of credit. The line of credit grows over time2 and is available any time you need it.
There are situations where you may not benefit from a reverse mortgage:
Your heirs want to inherit your home. If you have a reverse mortgage when you pass away your heirs will be responsible for paying off the loan. If they don’t want to keep the home, they can sell the house and keep the remainder of the proceeds.
Your health is declining. If your health is in decline and you are considering moving into an assisted living facility, a reverse mortgage may not be a good idea because the loan will become due as soon as you change your residence.
You want to move. Reverse mortgage borrowers get the most value out of their loan if they keep it for many years. If you are planning on moving soon, you will have the repay the loan as soon as you move which may cost more than just waiting to sell.
If you are interested in learning if you can benefit from a reverse mortgage, call 1 (800) 976-6211 to speak with a licensed loan advisor.
1 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.
2 The reverse mortgage loan balance grows at the same rate as the available line of credit. Line of credit growth occurs and is only a benefit when a portion of the line of credit is not used. The unused line of credit grows over time and more funds become available during the life of the loan.