The age old question of reverse mortgages
A reverse mortgage used to be a phrase that left a bad taste in your mouth, but that doesn’t have to be the case anymore. Everything has a time and a place, and a reverse mortgage is certainly no different.
You don’t need to fear a reverse mortgage anymore. It might seem devastating, but believe it or not, the benefits can actually outweigh the cost.
If you’re someone who is on the fence about reverse mortgages, then please pay close attention. As long as you know the facts, you can make an educated and highly lucrative decision.
It’s time to stop listening to your neighbor who knows nothing about finances, and take the necessary steps you need to fully understand how a reverse mortgage works. They’re no longer a last resort option, but a highly lucrative one.
At the end of the day, nobody is going to seize your home if you do it right, and it can definitely be a lifesaver or great leverage for a business opportunity.
So let’s not waste anymore of your precious time, and dive right in. We’ll be showing you the facts, and explain everything you need to know about reverse mortgages.
What is a reverse mortgage?
A reverse mortgage is a loan that is designed for people over the age of 62, and can be used as an additional cash flow vehicle in retirement. The beauty of a reverse mortgage is that it is paid back upon death. They also tend to be referred to as HECM reverse mortgage.
These types of loans are designed to use the equity of your home as collateral. This means that the value of your home, after you pass away, is what will be used to pay back the loan. Also, you should know that this is different from a home equity loan, because you won’t need to make mortgage payments with a HECM based loan.
Who is eligible?
Most people who are over the age of 62 are eligible for this type of loan. The youngest person on the loan must be at least 62, but you can apply at anytime during your retirement. You still need to make sure you’re financially eligible through the standards HUD puts out.
When is it paid?
A reverse mortgage is paid back when you pass away. The loan is payable by your estate, and the equity of the home is used to pay off the remaining balance on the loan. This is a good thing, because the value of a home usually goes up over the years to help offset this. Plus, believe it or not, personal assets are not liable.
How can I take distributions?
There are 4 primary ways that you can get paid, and they all make sense depending on the situation.
- You can take out a lump sum of funds
- Monthly income payments for as long as you live
- You can choose to get monthly payments for a set term
- You can choose a line of credit that you can draw from until it’s empty
- Plus, believe it or not, you can actually combine some of these options
Everything about a reverse mortgage is flexible, and once you keep reading, you’ll question why people used to despise them so much.
So let’s take a look at how they can help you down below.
How it could help
This is a loan that is designed for those who are in their retirement years. At the end of the day, unless your Bill Gates, everyone needs a little bit of help in retirement.
This is where the reverse mortgage loan comes in.
The loan is designed to be paid in either a lump sum, a designated cash flow, or even a line of credit. Plus, believe it or not, the value of the loan can actually increase overtime. This is due to the fact that the value of your home will likely increase over the course of 20 years.
Why is it good for retirement?
The loan wouldn’t only be available to those over 62 if it wasn’t a hidden gem. There is a reason you have to wait so long to get one. Trust us on that one.
It is good for retirement for a few reasons, and don’t worry, we’ll take a quick look at all of them
People outlive their money
It is no secret that we’re starting to live longer. A time where people only used to make it to 70 or 80 is over. There are literally people over 100 walking around out there. If you want to make sure you have enough cash flow to retire for 30 years instead of 20, a reverse mortgage could be a real life saver. Even as a line of credit, it can help you stay in your home instead of being forced out.
If you’re someone who is worried about the future, or is nervous about having enough money to sustain you into your 90’s, a reverse mortgage can be a great option to help ease your mind.
It negates your mortgage payment
Not everyone is able to pay off their mortgage before retirement comes knocking on the door. That is totally okay, because a reverse mortgage can help relieve you of some of the more demanding payments you might have.
People used to believe that if you still had a mortgage you could not take out a reverse mortgage on your home. This couldn’t be more far from the truth, and at the end of the day, having no mortgage payment in retirement is a real lifesaver.
If you’re someone who is worried about paying their mortgage in retirement, then a reverse mortgage might be right for you. It can help reduce some of that stress you might have, because you won’t have to pay the mortgage anymore.
It can work as a retirement supplement
Everyone thinks that they’re all set for retirement, but most of the time that’s sadly not true. A reverse mortgage can actually work as a supplement for your retirement plan, and we’ll show you exactly why.
Most people don’t know this, but the longer you hold off on taking government mandated contributions (like social security), the more money you’ll receive in income. If you’re social security income is only $2,000 when you’re 62, it could actually be upwards of $3,000 if you wait until you’re 70.
This could be a huge game changer, because it can help you maintain your bills longer, utilize your IRA accounts more effectively, and help you survive the later years of retirement. If you’re still on the fence, think of a reverse mortgage as a supplement.
You can use the line of credit, or take an income distribution, as a way to extend the life of your other retirement plans. You won’t need to worry about longevity with a reverse mortgage.
It can help you retire
Did you know that half of families approaching retirement age have only $5,000 saved? Well, believe it or not, that’s a scary fact. Unfortunately, not everyone is able to save the money they need for retirement. You only get one shot at this, so you need to make sure you do it right.
This is where a reverse mortgage can be a lifesaver, because it can free up the cash you need to finally retire. You don’t need to work until you’re dead, you just need to make sure you do it the right way. If you’re short on funds for retirement, a reverse mortgage might be an excellent option.
Why there is a bad stigma about reverse mortgages, and why it’s a myth
In the past these types of loans used to be looked at as a last resort. Even 20 years ago, the outlook was completely different. People really had no idea how they worked, or who they were for. People also did understand the difference between a reverse mortgage or a home equity loan.
Why were people scared?
People were mainly scared due to the fact that you’re borrowing against the equity of your home. This had people nervous about banks coming in and taking their property.
Luckily, it is very difficult for the bank to take over your home, and they would need you to pass away, leave home entirely, or have the last living heir pass away. The only time you need to pay this back is when you pass away, which makes it a no brainer if you need cash.
People were also worried, because of the word loan. Any type of loan has received a lot of abuse over the past decade or so. While some loans might be out to get you, a reverse mortgage does no such thing. It is paid back after you pass away, and the value of the loan can actually go up. It is tied to your equity, so it can be quite advantageous in this sense.
If you do the research, and make sure you understand the purpose of the loan, it does not have to ruin. While it used to be a last resort in the past, a reverse mortgage can be a lifesaver for those in retirement.
It’s really a double win if you do it correctly
Sure, a reverse mortgage is a huge decision, but it doesn’t need to keep you up at night. You just need the right information to make a truly informed decision, and you’ll find that there is nothing to worry about.
Now that you know the facts, hopefully you can make a truly informed decision. Reverse mortgages have received a bad reputation over the years, but they can truly play a huge part in anyone’s retirement plan.
A reverse mortgage can be a make or break, and can help make sure you never outlive your money. Nobody wants to move back in with their kids right? A reverse mortgage can definitely help you prolong your retirement, and keep you self sufficient.
You should definitely consider learning more, or at least looking into a consultation. Not only will it help you better understand a reverse mortgage, it will also peak your interest.
The myth has been busted, and we laid the facts out for you.
The question is: are you ready to learn more? It’s time to step down off that fence, and make that crucial decision.