Considering a Reverse Mortgage Loan
Oftentimes seniors are faced with the reality of living on a fixed income from a pension, retirement income, and/or social security when they retire. A statement often heard when speaking with seniors preparing for, or currently in retirement is, “I am having trouble making ends meet. My monthly income hardly covers expenses, and I don’t know how to afford the quality of life I’ve always wanted for my retirement.”
Thousands of seniors will be retiring every day and will continue to do so for the next fifteen years. It is important to know what options are available to assist seniors looking to elevate and enjoy their quality of life.
One of the highest monthly expenses Americans face today is their mortgage payment. Thankfully, the government sponsored a program designed specifically for seniors 62+ that eliminates monthly mortgage payments for life and provides tax-free funds depending on how much is owed on the home. These tax-free funds can be used for anything the borrower chooses. Seniors looking to move can also utilize this program to purchase a home. Still, there will be no payments for as long as they live in the home.
The FHA program, known as a Home Equity Conversion Mortgage (HECM; also known as a reverse mortgage), is growing in popularity because of its many benefits including relieving financial burden and creating financial freedom.
The HECM is a very viable option for many seniors because it eliminates their monthly mortgage payment for the rest of their life while maintaining sole ownership of their property. The only items which need to be paid are the property taxes and homeowner’s insurance. By eliminating what is oftentimes a senior’s highest monthly expenditure, the income and possible funds they receive can be allocated elsewhere to improve their quality of life. The borrower(s) may also sell their home or refinance out of the reverse mortgage with no prepayment penalties.
The downside? Since no mortgage payments are being made, the amount owed on the home increases over time due to interest accumulation (note: FHA insures that seniors will never be underwater in their property, meaning, they will never owe more on the home than the home’s worth). Heirs will be required to qualify for a traditional mortgage if they decide to keep the property.
The home may still be left to heirs though the heirs are not financially liable for the loan should they decide not to receive the home. The heirs have six months to a year to decide what to do with the property with full benefits of the HECM program. The heirs may refinance the loan or sell the property. If heirs decide they want to sell the home, they may do so by paying back what is owed and keeping the remaining funds from the sale.
The reverse mortgage investment/retirement tool can go a long way to secure a comfortable retirement.
Christopher Longe is a branch manager with The Money Store, now offering services throughout the Coachella Valley. Chris welcomes questions about reverse mortgage loans and can be reached at (949) 556.8861.
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