What is a Reverse Mortgage?
by: Stuart Simpson
Simply stated, a reverse mortgage is a loan that enables homeowners (age 62
and older) to convert part of the equity in their home into a tax-free income
without having to sell the home, give up the title, or take on a new monthly
mortgage payment. More and more homeowners are using this to supplement their
retirement income, pay for health care, modify their home, or just get some cash
for emergencies. Since this is a new product, some people have misconceptions of
what a reverse mortgage is. The bank doesn’t give you money and take your house.
Let’s look at some of the most common questions.
Are reverse mortgages for desperate people? No. It is an excellent financial
planning tool used from people of all walks of life.
How do I qualify? You must be 62 or if both parties are on the mortgage, then
you both must be at least 62. And, you must have equity in your home.
What if I still owe on my home? You may still qualify even if you have a
balance on your first mortgage. The proceeds must be used to pay off the
mortgage, first.
How much can I get? This depends on several factors such as, the age of your
home, the value, your age at the time of closing, and interest rates.
Is it just monthly payments? No. You can get a lump sum, line of credit,
monthly payments or a combination of monthly income and a line of credit.
But, won’t I have to pay taxes on these monthly payments to the government?
No. The funds are tax-free. Its your money, not additional income.
Should I seek a lawyer or receive some counseling before I get a reverse
mortgage. Yes. You must be counseled before receiving a reverse mortgage. You
don’t have to talk to a lawyer or accountant, but it would be advised.
Who owns the title to my house? You still own the title.
What happens when I die? Once your home is passed on to your heirs, the
mortgage becomes due. Your heirs may pay the mortgage and keep the home or sell
the home and pay off the home. They may keep any excess sales proceeds.
What if I owe more than the house is worth? You can’t. Your repayment amount
will never exceed the value of the home at the time the loan comes due. Also,
there are no prepayment penalties.
What if I move? If you move, then the mortgage becomes due and must be
repaid.
Where can I learn more? The National Reverse Mortgage Lenders Association at
http://www.reversemortgage.org
