The Advantages Of Reverse Mortgages
BATTLECALL GUEST EXPERT: Charles Kirkendale, Loan
Officer
In recent years property values have soared, while investment returns have
been modest. This has created a situation where a lot of seniors are finding
themselves in the position of being house rich and cash poor. These cash
strapped seniors are looking for ways to increase their retirement income while
continuing to live in their homes. These retirees find that their options are
limited, and in most cases require them to risk their home. Enter the reverse
mortgage, which can provide many advantages over these other less desirable
options.
No Payments With Reverse Mortgages
The biggest advantage of a reverse mortgages is not having to make payments
as long as you continue living in your home. In fact, this is the number one
reason that seniors choose to borrow reverse mortgages. Almost 80% of reverse
mortgage borrowers use a reverse mortgage to pay off their current loans in
order to eliminate their house payments. Let's say you owe $50,000 on your first
mortgage and borrow $80,000 with a reverse mortgage. This would pay off and
eliminate the payment on the first mortgage and provide you with $30,000 to use
as you please.
Live In Your Home As Long As You Like
The second advantage of reverse mortgages is the ability to live in your
house as long as you like. The great thing about this is the amount you owe on
the reverse mortgage can never be more than the house is worth. Let's say you
live to 115 and have selected to recieve a $300 a month payments for life from
the reverse mortgage. The amount received from the reverse mortgage payments
could be substantially higher than the value of your home, yet the amount owed
will still only be the value of the home. In this situation, FHA insurance will
cover the difference.
Reverse Mortgage Withdrawal Options
Another advantage of reverse mortgages is the different withdrawal options
that a you are able to choose. These options include lump sum distributions,
line of credit, monthly payments, or any combination of these three. So if you
were eligible to borrow $100,000 on a reverse mortgage you could select to
receive $30,000 up front to cover current expenses, and hold the rest as a line
of credit that you can use whenever you need it. This flexibility of reverse
mortgages can significantly improve you financial independence during
retirement.
Tax-Free Nature Of Reverse Mortgages
Another advantage of reverse mortgage is the tax-free nature of the loan
proceeds. The American Bar Association guide to reverse mortgages advises that
generally the IRS does not consider loan advances to be income. This means that
all the money from the proceeds of the reverse mortgage end up in your pocket.
With these features, reverse mortgage are definitely an option to consider if
you are looking for ways to supplement your current income. As with any
financial decision, you should seek the advice of a trained professional, a
reverse mortgage counselor, to evaluate and determine if a reverse mortgage is
right for your situation.
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