Is a Reverse Mortgage Right for Me?

Many people who have retired may find out that they misjudged in their savings for their retirement income. It’s unlikely that anyone who has retired will suddenly pick up and re-enter the job market.

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However, thankfully, there are other options. One of the best ways to supplement retirement income is through a reverse mortgage.

A reverse mortgage works off of the equity that a person has built up during the course of their life by paying off their own mortgage. Banks know that the value of a home is reliable and will supplement income. This allows people who have chosen retirement some versatility in their finances which will allow them to continue their retirement in complete comfort.

What is a Reverse Mortgage?

A reverse mortgage is an agreement between a homeowner and the bank. While a mortgage allows a person to take a loan from the bank and then pay it off, a reverse mortgage essentially has the bank take a loan out to own a person’s home, and then they pay it off.

Reverse mortgages end with the bank owning the home at the end of a person’s life. They can then sell it to recoup the money they have been paying out. The name sort of speaks for itself and it functions with the bank and homeowner swapping places on the loan.

Some people are concerned about passing on a home full of memories to the next generation. It’s good to note that a reverse mortgage does not prevent this. Children of the loaner have the first option to buy a home after their parents have passed on. The price is often determined as fair market value according to inspections and appraisals. No bank is allowed to try to gouge children of passed parents for too much money when they don’t deserve it.

Home Equity Conversion Mortgages (HECM)

An HECM is very similar to other reverse mortgages, except it is insured by the Federal Housing Administration. In this case, money is borrowed by the homeowner against the equity that has built up in their home.

What’s interesting is that an HECM provides all of the money up front, instead of payments like a reverse mortgage. Interest grows on the balance, but there’s no payments required from the borrowing person. Upon their death, the entire value has to be paid. This typically comes from the sale of a home, or a settlement with a benefactor of the estate. At that point, they would retain the home.

Benefits of a Reverse Mortgage

There are people who have chosen the route of the reverse mortgage. Obviously they wouldn’t be doing this if there was no real benefit to doing so.  There are many benefits to having a reverse mortgage. Some of them are:

  • Retain Independence - For retirees who are running out of money, a reverse mortgage will allow them to retain their own financial independence.
  • Extra Travel - For people who have chosen to retire to travel, the added income of a reverse mortgage can turn a great trip into a luxury vacation. It can also used to take more trips abroad, or to discover all that America has to offer.
  • Emergency Money - There’s moments where unexpected finances make occur. Sometimes it may be a medical bill or perhaps a necessary home renovation. A reverse mortgage gives the cash flow to handle anything that comes along.

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