Reverse Mortgage Loan
A reverse mortgage is a loan for homeowners aged 62+ that allows the borrower to convert a portion of the home's equity into cash and defer repayment for so long as they live in the home and pay the property-related taxes, insurance, and upkeep expenses. The loan proceeds are tax free* and could be used for just about anything.
What a reverse mortgage is:
What a reverse mortgage is not:
A loan that converts equity to cash for many different uses.
Increases cash flow or pays off of mortgage when the payments are no longer as easy to make. The primary reason to use a reverse mortgage should be proactive, not reactive to a cash flow problem. When things are good it is a great time to get a lifesaver in case the financial waters get rough later in life.
Not: a sale or lifetime commitment
The deed is still in your name so you can move whenever you want. Most reverse mortgages are federally insured through the FHA. As long as you pay the property taxes, homeowners insurance, and maintenance costs your home cannot be foreclosed on. We must honor this commitment for life or as long as you live in your home. However, you are allowed to change your mind and sell the home whenever you want if you wish to move to warmer climates, a smaller home, or closer to your children, whatever your choice may be. Only you will make the decision, not the lender or the government.
Why it doesn't pay to wait to set up a
Reverse Mortgage Loan
A Home Equity Conversion Mortgage (or HECM, commonly known as a reverse mortgage) is a loan that allows homeowners 62 and older to convert a portion of their home equity into cash. The borrower can defer repayment of the loan for as long as he or she lives in the home as his or her primary residence, pays property tax and insurance, and maintains the home. Many people have been led to believe a reverse mortgage should only be pursued as a loan of last resort-a tool to set up when seniors want to stay in their homes but have no other viable options left to do so. Based on findings in academic research by Barry Sacks, Wade Pfau, John Salter, and others, there is a more optimal use for reverse mortgages: set up a reverse mortgage at the earliest possible age and strategically use it as part of a comprehensive retirement plan.
The ultimate multi-tool
Eliminate Mortgage Payments (must pay taxes, insurance, and maintain home)
Pay for long term care
Access line of credit during market downturns
Pay for healthcare expenses
Maximize tax implications
Increase cash flow
Put home equity to work