Reverse Mortgages
What is a reverse mortgage?
A reverse mortgage is a home loan (used for any purpose) where seniors, 62 and older, can access the equity (cash) built up in their home.
It is called a reverse mortgage because you borrow money from a lender, but the lender makes monthly payments to you, rather than you making monthly payments to the lender. All interest is paid at the end of the loan, rather than in the beginning.
What are some of the benefits of a reverse mortgage?
- Strengthen your personal and financial independence.
- Help pay for health care or other needs.
- You can never lose your home in foreclosure as long as you maintain the property tax and insurance payments.
- The loan is only paid off when the house is sold by you or your heirs, or all borrowers move out of the house.
- Keep your Medicare or Social Security benefits.
- Use it as a credit line and draw upon it as needed.
- Get all your cash right away.
- Get the best of both—get cash now and have a balance in reserve to use as a credit line.
- No Income Requirements: The homeowner does not need to be working and is not qualified based on income.
Questions and Answers about Reverse Mortgage
- Many seniors and financial advisors believe that once you close on a reverse mortgage the lender owns the home. You never forfeit title to your home, and you retain all rights to determine who will inherit your home on your passing.
- Many believe that there is a set period of time after which the loan must be repaid, or if one of the homeowners should leave the home or pass before the other, the loan becomes due. As long as one of the homeowners continues to occupy the home as a primary residence, regardless of the status of the spouse, there is no time limit to how long the remaining homeowner may remain in the home.
- The home must be free and clear. The home does not need to be free and clear. Reverse mortgage proceeds will be used to pay off existing mortgages and eliminate those payments. Eliminating the current mortgage is a primary reason seniors apply for a reverse mortgage.
- Many seniors have avoided a reverse mortgage because they thought the proceeds were considered income and would be taxed. The IRS has ruled that the proceeds from a reverse mortgage are equity advances—not income. As a result, the proceeds are not taxable and have no affect on Social Security or Medicare benefits.
- Some think if they never make a payment, over time the interest will eat up all the equity and nothing will be left for their heirs. Due to the low interest rates, the appreciation in the home, and how the interest is assessed, substantial equity in the home remains untouched. And 100% of the excess equity belongs to the homeowner, their heirs or estate.
- Only seniors who are house rich and cash poor use reverse mortgages. Some of the highest net worth seniors are applying for reverse mortgages. Estate planners and wealth management professionals have discovered creative ways to use the tax-free proceeds from a reverse mortgage in estate planning.
- A reverse mortgage cannot be used to purchase a home. For now, this is true in Texas. However, in other states many seniors have purchased more home than they thought they could afford. In fact, they can usually purchase twice the home they expected, and with no mortgage payments for life.
To answer your questions or additional information please contact: Jon Pulling
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