Reverse Mortgages
You may have heard a lot about reverse mortgages. You see older celebrities advertising them on TV, and you may have heard horror stories about them.
Reverse mortgages can and should be an important part of all of our retirement planning. They may make sense or may not. Understanding this unique form of financing can go a long way to helping you decide whether it makes sense for you or a family member.
First, the details. Reverse mortgages are available to anyone over the age of 62 years. They can be used as a refinance on an existing home, or as a loan used to purchase a new home. You may only use a reverse mortgage for a principal residence.
The unique feature of a reverse mortgage is that there is no payment of principle and interest on the loan. Also, if there is sufficient equity, the borrower can receive cash from the loan to use for any purpose. Interest is added to the loan every month, so the loan balance increases. However, as long as the borrower remains in the home, there is no obligation to pay off the loan balance.
Let’s address the pro’s and con’s of reverse mortgage:
Pros:
- Most obvious, you can borrow funds from the home with no payment required except taxes, insurance and association fees. This can save you thousands of dollars in monthly payments, allowing you to stay in your home after retirement, or to purchase a more suitable home for your lifestyle.
- The ability to take funds out of your home may allow you to forestall taking Social Security payments until such time as you can maximize that benefit.
Cons (And these are only cons if you are not aware of them):
- Loan balance increases every month. True, but you may only borrow a small per centage of your equity (for a 70-year old, that number is about 60%). In reality in Southern California, long term appreciation has outgrown the increase in loan balance.
- You must leave the home when you are no longer able to live in it. An important caveat. It is important that for a husband and wife, both are over 62, so either may stay in the home.
As with all financing, a thorough knowledge and excellent council are essential to the decisions about a reverse mortgage. Please call 949-500-6365, email Frank@FrankDiLauro.com for more.
Next Week: Qualifying for a reverse mortgage-EASIER THAN YOU THINK!
