TOP 10 REASONS FOR A REVERSE MORTGAGE
You can basically lump the reasons for taking out a Reverse Mortgage into three categories: emergencies, debt and lifestyle improvements. But breaking down those categories shows there are several great reasons to take this bold financial step:
1. Pay off your existing mortgage.
Many seniors use a Reverse Mortgage to pay off the balance of their existing mortgage – delivering the peace of mind of knowing they’ll never be forced from their home.
2. Complete home repairs/improvements.
Fix that roof! Finish that basement! Even convert your house into a two-family unit – turning your equity into revenue!
3. Improve quality of life.
Sometimes, it’s the little things that make you happy. Find a more comfy couch. Silence that noisy muffler. Eliminate whatever nuisances stand between you and total comfort – without thinking twice!
4. Cover everyday expenses.
Groceries, electricity, heating oil, gas … you don’t need us to tell you it adds up! Never choose between medicine and a meal again.
5. Ready for the unexpected.
Emergencies can crop up in an instant – and hospital bills can mount without warning. Don’t waste another moment worrying how you’ll get by if the unthinkable occurs.
6. Eliminate debt.
Car payments, student loans, credit card debt – the list goes on. Say goodbye to late charges and other nuisance fees by paying off your individual debts, or consolidating them into your Reverse Mortgage.
7. The ability to handle disability.
Physical impairments often develop in the senior homeowner. A Reverse Mortgage can provide the funds you need for projects like shower modifications and enlarged doorways for wheelchairs.
8. Pay property taxes and insurance premiums.
You see news about foreclosures every day, but did you know many of those foreclosures occurred not because the homeowner was behind on mortgage payments, but tax payments? Use the equity in your home to keep your home.
9. Be there for your loved ones.
Younger family members may not have established credit like you do. With a Reverse Mortgage, you can help reduce their monthly liabilities. (Remember, credit cards, car loans and student loans often have higher interest rates than Reverse Mortgages!)
10. Investments, annuities or long-term care insurance.
Some investments have a greater return rate than the interest accruing on a Reverse Mortgage. Your home equity can even jumpstart a new business venture!
MYTH VS. FACT
As Reverse Mortgages have exploded in popularity, so have the myths regarding these unique loans. While there’s a host of better information out there today, many seniors and their advisors still encounter various Reverse Mortgage misconceptions. Here are some of the most common myths – and the facts you need to know.
MYTH: The borrower can lose the house
FACT: With a Reverse Mortgage, the borrower retains the title throughout the life of the loan. As long as property taxes and insurance premiums are paid and the home is maintained in a reasonable living condition, as a result of a Reverse Mortgage, a borrower cannot be forced from a home.
MYTH: The loan never has to be repaid
FACT: Of course the loan must be repaid, but not until the borrower moves, sells the house or passes away. Most properties secured by Reverse Mortgages still have equity when such a maturity event occurs; borrowers or heirs often opt to sell the home to repay the loan and preserve this equity for the benefit of the borrower or his/her estate.
MYTH: A home must be paid off or debt-free to qualify
FACT: Not true. A Reverse Mortgage converts home equity into cash, and as long as there is sufficient equity in the property, the homeowner may be eligible for a Reverse Mortgage – regardless of an outstanding mortgage balance or other debts. In fact, many borrowers use their Reverse Mortgage funds to pay off an existing first or second mortgage.
MYTH: The homeowner’s children want the home, or are uncomfortable with their parents obtaining a Reverse Mortgage
FACT: Adult children are often pleased when their parents find a financial solution that keeps them in their homes, mitigates their daily expenses and delivers financial security. Of course, homeowners should discuss the options with their families before making any major financial decisions.
MYTH: The borrower can wind up owing more than the house is worth
FACT: Built-in safeguards prevent this from happening. A borrower or his/her estate can never owe more than the value of the home upon repayment. Additionally, the Senior Funding Group offers only Home Equity Conversion Mortgages (HECM), which are insured by the Federal Housing Administration.
MYTH: There are restrictions on how the money can be used
FACT: There are no restrictions. Proceeds from a Reverse Mortgage can be used for any purpose: travel, pay off debt, make purchases or just improve your daily comforts.
MYTH: Reverse Mortgages are only for seniors in need, or the “house rich, cash poor”
FACT: Reverse Mortgages are excellent financial planning tools that have been used by homeowners from all walks of life to enhance their retirement years.
FREQUENTLY ASKED QUESTIONS
What kinds of properties are eligible?
Senior Funding Group currently offers Reverse Mortgages for owner-occupied single-family homes, two- to four-unit properties, condominiums, townhouses, Planned Urban Development homes and manufactured homes. We don’t currently offer Reverse Mortgages for co-ops or mobile homes, but that’s subject to change.
Can I take out a Reverse Mortgage on a second home?
No. Reverse Mortgages can only be taken out on a homeowner’s primary residence that is, the residence where the homeowner spends the majority of his or her time.
Will a Reverse Mortgage affect my Social Security or Medicare benefits?
While some Federal Supplemental Security Income of state programs may be affected, a Reverse Mortgage does not generally affect regular Social Security payments or Medicare benefits. Borrowers should consult with a financial advisor or the appropriate agencies.
Will I have to pay taxes on my Reverse Mortgage income?
Since the proceeds are already your money (the equity you’ve built in your home) they are tax-free. Before making any decision, you should consult with your tax advisor.
What, exactly, is “equity”?
Equity is your home’s value less any outstanding mortgage or liability. It exists in conjunction with your home’s loan-to-value (LTV) ratio. Say you buy a $100,000 home and make a $20,000 down payment, and cover the remaining $80,000 with a mortgage. Dividing $80,000 by $100,000 gives you an LTV ratio of 80 percent and equity of 20 percent, or $20,000.
Wouldn’t it be cheaper to just move to a smaller house?
Maybe … but not always! Seniors need to analyze their costs carefully before making this assumption. Selling a home and moving can be a very costly undertaking, considering real estate commissions and moving expenses.