As numerous Americans plan for retirement and rely on alternative sources of post work income, one that may come to mind is a reverse mortgage. The concept of a reverse mortgage is rather simple: a person pays you, based on the value of your home. There are various options available as to how you wish to receive this money. You might choose to take monthly payments, take a lump sum, or receive a line of credit.
When you purchased your home you probably had to make mortgage payments. As you did, you began to decrease the amount of debt owed and gradually increased the amount of equity in your home. Reverse mortgages are the opposite. As time passes, you gradually receive more and more money from the lending company.
The intention of a reverse mortgage is to have an added source of income, particularly if you plan on selling your home near the end of your life or after you die. It permits you to take in the equity from your home and enjoy it in retirement. The amount you receive in the reverse mortgage is based on the value of your home, current interest rates, and your current age.
Once you’ve received the amount your home has been determined to be worth, less any fees charged by the lender, you will owe that amount to the lender. You can pay that back any way you wish, but in numerous cases, the idea is to sell your home and repay the debt. Usually, this is done by an estate after a person passes away and still has debt. As long as you’re permanently living in your home, you don’t need to pay the lender back.
Reverse mortgages include many details and can be complicated, which is why it’s best to consult a financial professional for advice before looking into them much further. While they may have a lot of technical details, they don’t have many requirements. In general, you must be 62 years of age or older, and own your own home. Those are the two basic requirements of a reverse mortgage. Other than that, there are a few other simple things to keep in mind.
Reverse mortgages do have upfront costs, just like a regular mortgage. They also have monthly service costs. However, all of the money you receive from the lender is tax-free. To receive a better estimate of how much a reverse mortgage would pay you, it is wise to meet with a financial professional.
Unfortunately, reverse mortgages aren’t for everyone. Reverse mortgages could supply a valuable resource to individuals when the circumstances are right, but there are many considerations to be taken before choosing one, involving: fees, restrictions, estate planning considerations, need for income, other assets, health considerations, insurance coverage, and so on.
Frequently a reverse mortgage is a last resort for income for many individuals and many individuals decide that reverse mortgages aren’t for them. And in many situations, for instance, if you want the house to stay in your family for many generations, then it might not be for you.