Why should I consider a reverse mortgage?
Your retirement funds may come from savings, investment income, and Social Security. But now, there’s another source that may help you complete the longevity planning puzzle.
Reverse mortgages are becoming increasingly recognized by homeowners and financial advisors as a smart and safe way to access an important retirement asset: home equity.
Most reverse mortgages are government-insured Home Equity Conversion Mortgages (HECMs). You will often hear the terms used interchangeably. Available exclusively to people age 62 and older, a reverse mortgage could help you live more comfortably and be more financially prepared for the future. For example, you can use a reverse mortgage to:
- Avoid selling investments at a loss in a “down” market.
- Establish a “stand-by” line of credit that you can tap as needed. Unlike a traditional Home Equity Line of Credit (HELOC), a reverse mortgage line of credit cannot be reduced or revoked, as long as the terms of the loan are met. And the unused line of credit grows over time.
- Supplement retirement income with tax-free funds
- Pay for medical or long-term care costs
- Finance the purchase of a more suitable home, with no monthly mortgage payments
Among the benefits of a reverse mortgage:
- The ability to use your home equity to help you maintain a more comfortable standard of living, in your own home.
- Tax-free loan proceeds you can use in multiple ways.
- Great flexibility. You can choose to take your proceeds as a line of credit; monthly advances for a set period of time; a monthly stream of funds for as long as you live in your home; a lump sum; or a combination of these options.
- No monthly mortgage payments**. If you qualify and have an existing mortgage, home equity loan or any other type of debt, you can pay it off and reduce your monthly expenses. Or, if you own your home free-and-clear, you can get the additional funds you need with no monthly mortgage payments. (As the homeowner, you remain responsible for paying property taxes, homeowners insurance, and homeowner’s association dues if applicable.)
Using Your Proceeds
The following chart shows some common uses for a reverse mortgage, and how you might wish to take your proceeds, depending on how you plan to use them. Talk to Josh Thomas with South Bay Equity Lending to help determine the best course of action for you.
Reverse Mortgage Myths
Clearing Up Common Misconceptions
1. “A reverse mortgage requires giving up ownership of your home.”
False. As the borrower, your name remains on the title and the home is still yours—just as it would be with any mortgage. You’re required to continue paying real estate taxes, homeowner’s insurance, and providing basic maintenance to your home. Once you no longer live in the home as your primary residence, the loan balance, including interest and fees, must be repaid. * This is usually done by the homeowner or their estate selling the house.
2. “A reverse mortgage should only be used as a last resort.”
False. With newer loan options that reduce up-front costs, reverse mortgages have become more versatile in recent years. Many homeowners age 62 and older are now using a reverse mortgage strategically as part of a sound financial plan.
3. There are restrictions on how I can use the money from a reverse mortgage.
False. How you use your reverse mortgage proceeds is up to you. Among the most common uses are paying off an existing mortgage or other debt in order to eliminate monthly debt payments; creating a cash reserve; supplementing monthly income; paying for home improvements; or covering medical bills or long-term care expenses.
4. “I could wind up owing more than my house is worth with a reverse mortgage, and leave my heirs with debt.”
False. A HECM (Home Equity Conversion Mortgage) reverse mortgage is insured by the Federal Housing Administration. This insurance feature guarantees that you will never owe more than the value of your home when the loan becomes due. No debt will be left to your heirs. And if the loan balance is less than the market value of the home, the additional equity is retained by the homeowner/heirs (if the home is sold).
5. “Reverse mortgages are too complicated.”
Not so. With most financial products, there are a number of factors to consider before you can choose what’s best for you. With South Bay Equity Lending, you can rely on your Joshua Thomas to be a trusted
resource for clear information and responsible guidance. In addition, before you apply for a government-insured Home Equity Conversion Mortgage, you are required to receive reverse mortgage counseling from a third-party counselor who’s approved by the U.S. Department of Housing and Urban Development (HUD). These independent counselors are not affiliated with South Bay Equity Lending, and their only job is to ensure you fully understand every aspect of your reverse mortgage.
To get all the facts about reverse mortgages, please contact me:
Joshua Phillip Thomas
BRE # 01914607
NMLS # 802745
Let South Bay Equity assist you with all your needs in Purchasing, Refinancing, HELOC, Construction, Reverse & Commercial loans of all types.