The secret to your retirement income could live in your home’s equity.
Reverse mortgages can solve issues with monthly cash flow. Eliminating your current mortgage payment may free up enough cash to live a more comfortable life. If a reverse mortgage could help you, here are a few questions to ask first:
1) What viable alternatives are there to a reverse mortgage?
One of the main alternatives is a 2nd mortgage usually as a line of credit. These are great for accessing equity from your home for home improvements, buying a new car, etc but also require a monthly payment. Adding to your monthly debt is typically what homeowners are trying to avoid. A reverse mortgage can get you cash out of your home as well as not increasing your monthly payments.
2) Can I afford the fees and what are the risks?
Fees for the reverse mortgage loan are comparable to traditional loans which are made up of title, escrow, appraisal and lender fees. They usually range between $3,000 to $4,000 and can be included in your initial balance so you don’t have to bring the money out of your pocket if you don’t want to. The big fee involved on reverse mortgages is payable to FHA (Federal Housing Administration). It’s currently 2% of your appraised home value which can be expensive but there is a benefit to it. FHA uses this money to cover any homeowner in the future from passing any negative debt down to the heirs if there is one.
3) Is this the right house for aging in place?
This is a key question. Reverse mortgages are intended to be a long-term solution. If this isn’t the right house, there is an option of using a reverse mortgage to purchase the perfect home for you and still not have a monthly mortgage payment. If your home still meets your needs, you can use your equity to make necessary upgrades or improvements with a reverse mortgage.
4) How would I pay for long-term care and other expenses?
A reverse mortgage has a few options when it comes to accessing your equity. You can take a lump sum at closing or set up a monthly payment stream. You can set up your payment stream as a guaranteed for life distribution or if you need more for long term care that can be very expensive, we can set it up to meet this obligation for a term that is determined by your available equity.
5) Do I want to leave my house to my heirs?
When it’s time to pay off the reverse mortgage, your heirs have the option of keeping the house and paying off the current loan balance or selling the house and splitting the equity based on your will or trust specifications.
6) Can I explain what a reverse mortgage is?
Reverse mortgages are not as complicated as people can make them. It really boils down to borrowing your accrued interest against the equity in your house compared to making a monthly payment on a traditional mortgage.
These are all things you should discuss with your family, financial professionals and a reverse mortgage professional (like me)!