Financial security and peace of mind is vital to retiring seniors’ well-being. In fact, research found that financial stress has a direct impact on the health of seniors.1 Unfortunately, many seniors experience financial stress despite the negative effect it has on them. A survey conducted by the Federal Reserve reported that 31% of adults in their 60’s experience “major financial stress” that stems from a number of sources, but most often cash flow and health.2
One way that senior homeowners may be able to reduce their financial stress is by accessing their home equity through a reverse mortgage loan. Unlike a traditional mortgage, home equity loan, or home equity line of credit (HELOC), a reverse mortgage allows senior homeowners to access a portion of their equity without ever having to make a monthly mortgage payment.3 The loan proceeds are not taxed as income, or otherwise,4 and do not become due until the last borrower or qualifying non-borrowing spouse no longer occupies the home as their primary residence.3
When choosing how to receive the funds from a reverse mortgage, the borrower can configure their payment to best fit their financial needs. A reverse mortgage payment can be set up as a line of credit that is available to the borrower any time it is needed. The line of credit grows over time, independent of the home’s value.5 As long as the loan obligations are met, the reverse mortgage line of credit cannot be reduced or cancelled. When the line of credit is needed, it can be withdrawn all at once, in part, or in monthly installments. Setting up a line of credit with a reverse mortgage gives peace of mind to seniors by providing a financial cushion for unexpected expenses. This option is best suited for seniors who are not experiencing an immediate financial stress, but want to have the peace of mind that they will have funds readily available to cover unexpected expenses.
If a borrower needs the bulk of their reverse mortgage payment immediately, they can receive it as a lump sum payment.6 A lump sum is recommended if the borrower has an immediate need to use a large amount of money to pay down existing debts, make renovations to the home, pay for healthcare expenses, or for any other reason. Monthly installments are also an option that can be set up as term or tenure payments.
Term payments mean monthly checks are sent for a fixed period of time, whereas with tenure, the monthly payments are for the life of the loan. Monthly payments supplement the borrower’s income and provide peace of mind that there will be a check coming each month to help pay bills and other expenses. In addition, any combination of the disbursement options can be configured to meet the borrower’s needs.
A reverse mortgage loan is a flexible option that may provide financial peace of mind for seniors who are experiencing financial stress or want to prevent it. If you are homeowner 62 and over looking for financial security, a reverse mortgage may be an option for converting your home equity into the funds you need. To learn more or request a free eligibility assessment contact a licensed loan advisor at 1 (800)976-6211 or click here to request a call back.
1 Laura J. Herpolsheimer, Wichita State University. Financial Stress: How Older Adult’s Health is Affected. https://soar.wichita.edu/bitstream/handle/10057/11596/d15010_Herpolsheimer.pdf?sequence=1
2 Board of Governors of the Federal Reserve System. Insights into the Financial Experiences of Older Adults: A Forum Briefing Paper. https://www.federalreserve.gov/econresdata/older-adults-survey/July-2013-Financial-Stress-and-Well-Being-of-Older-Adults.htm
3 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
4 Generally, money received is not considered income and should be tax free, though you must continue to pay required property taxes. Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.
5 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.
6 Only available on a fixed rate loan.