Understanding the Reverse Mortgage
A reverse mortgage can be a safe and effective financial tool for homeowners looking to enhance their retirement income. Here are answers to some of the most common questions.
What is a reverse mortgage?
A reverse mortgage is a special type of home loan available to homeowners, starting as young as age 55. It allows you to convert a portion of your home’s equity into tax-free funds without having to sell your home or make monthly mortgage payments. Financial planners often see it as a way to improve your cash flow during retirement.
How do I qualify?
Qualification is based on three simple factors, not your credit score or income:
- You must be at least 55 years old.
- You must own your home and have a substantial amount of equity in it.
- The home must be your primary residence.
What are the key benefits?
- No Monthly Payments: You are not required to make monthly mortgage payments. The loan is typically repaid when you sell the home or no longer live there.
- Tax-Free Funds: The money you receive is generally not considered taxable income.
- Flexible Payouts: You can choose how you receive the money. Options include a lump sum, monthly payments, a line of credit, or a combination of these.
- You Retain Ownership: You continue to own your home and retain the title. You are simply responsible for paying property taxes, insurance, and maintaining the home.
How much money can I receive?
The amount of funds you can access is determined by the age of the youngest borrower, the appraised value of your home, and current interest rates.
When is the loan repaid?
The loan balance, including the principal and accrued interest, becomes due when the last borrower sells the home, moves out permanently, or passes away. This is a non-recourse loan, meaning you or your heirs will never owe more than the value of the home when it is sold to repay the loan.