A common misconception of a reverse mortgage is that the lender takes ownership of your home. This is not true. You continue to maintain ownership of your home, as long as you comply with the terms of your loan and pay your property taxes and homeowner’s insurance.
Your home is probably the most expensive possession you own. Home equity represents a valuable investment that represents security in your future. When you own your home, you have many options for tapping into the equity of your home to help take care of your financial needs. One of them is a reverse mortgage.
Benefits Of Home Equity
Many homeowners choose to refinance their mortgages when interest rates are low to acquire additional funds to pay off other bills or to free up their monthly cash flow as a result of having lower mortgage payments. Another option that many homeowners consider is the opportunity to get a home equity loan for the purpose of building a cash nest egg and paying off other debts.
Homeowners 62 and older have another excellent opportunity for benefiting from the equity of their homes. This option is called a reverse mortgage, and it is designed to allow homeowners who have reached retirement age to generate an income stream based on the equity they have in their homes.
Since reverse mortgages have only recently started catching on with homeowners, there is a great deal of confusion regarding what reverse mortgages really are. First off, only people who are 62 and over qualify for reverse mortgages. When you get a reverse mortgage on your home, the mortgagor actually pays money to you instead of the other way around.
The money you receive through a reverse mortgage becomes tax free income that you will receive for the rest of your life. You are not required to give up the title to your home or leave your home. When you take out a reverse mortgage on your home, you can also elect to receive the proceeds in a lump sum.
If that works best for you. You can also set up the mortgage so that you receive monthly payments, or so that you can draw against the total amount as you see fit.
A Traditional Mortgage And A Reverse Mortgage
Whether or not you have a traditional mortgage on your home, once you reach 62 years of age you can also take out a reverse mortgage. However, it is generally best to take out a reverse mortgage when you own your home free and clear, debt free.
You would only be able to take out a reverse mortgage up to the amount of equity you currently have in your home. So the amount that you owe on your home would be deducted from the total you could get through a reverse mortgage.
Typically, senior citizens seek reverse mortgages as a means to help take care of their day-to-day expenses of life. You worked hard to pay for your home, so why not benefit from the equity in your home if you are living on a fixed retirement income.
Also remember though, that a reverse mortgage is still a mortgage. Once you move out of your home, or the home is sold, or the homeowner passes away, the reverse mortgage will need to be repaid. There is also a risk associated with taking out a reverse mortgage.
In the event that the proceeds from the sale of the home are not enough to pay what is owed on the mortgage, the homeowner or his or her heirs could be left with an additional balance to repay. What are your thoughts on a reverse mortgage?