One of the most misunderstood mortgage programs is a Reverse Mortgage. To be fair, early on there were some abuses, which in large part have been remedied. Today, a Reverse Mortgage is the choice for many senior homeowners approaching or in retirement.
Why is that?
- No mandatory, monthly Principal and Interest Mortgage payment is required
- Responsibility for repayment is transferred from the borrower to the home
- The term of the loan is age 150 of the youngest borrower
- Safeguards such as a required 1 hour counseling by an independent 3rd party, cap on fees, protections for non-borrowing spouses, borrowers providing income documents to prove they can afford the property taxes, homeowners insurance and maintenance on the home
- When a senior homeowner taps into their equity either by lump sum, monthly installments or a line of credit that earns compound interest, it increases the chances of them not outliving their resources
- Unlike a Home Equity Line of Credit, a Reverse Mortgage Line of Credit cannot be cut, frozen or payment required
- Proceeds from a Reverse Mortgage are not taxable and usually don’t affect government benefits
- The borrower can use the funds from a reverse mortgage however they wish, except purchase an annuity
- A Reverse Mortgage can be paid off at any time as there is no prepayment penalty
- There are fixed or adjustable rate options available
- The interest rate is protected at application, if it goes down prior to closing, they will receive the better interest rate
- For most homeowners their equity is at risk should there be a market correction, with a Reverse Mortgage, about half of the equity is sheltered from a market downturn
- In most cases, the only out of pocket fees are the counseling ($125-$190) or the appraisal ($675), the other fees are paid from home equity
- From application to closing is 30-45 days
To learn more and to see if a Reverse Mortgage can help you have a happily ever after retirement, reach out and let’s see if this might make sense for you.
