By Mark Browning – HomeChex Reverse Mortgage
According to the 2012 Ameriprise Financial Retirement Check-In survey, nearly half of respondents (47%) now expect to use home equity to help fund retirement.
A reverse mortgage is a financial tool that empowers older homeowners to access and manage housing wealth, without having to sell or create new monthly payment obligations. It is a loan secured by the home that has no monthly payment requirement. While living in the home, the homeowner can draw cash from home equity at times and amounts as they choose. A reverse mortgage is typically repaid in one lump sum when the home is sold. The main program is the federally insured Federal Housing Administration (“FHA”) Home Equity Conversion Mortgage, which insures that the homeowner(s) or their heirs can not owe more than the home value. The FHA also insures the future availability of funds to the homeowner(s).
As with many financial products, there can be a number of misconceptions about how the product actually works.
Myth No. 1: Title Changes
Title and ownership do not change during the life of the loan, and the property can be sold at any time. As long the homeowner continues to meet loan obligations such as living in and maintaining the home, and paying property taxes and homeowners insurance, the loan can’t be called due.
Myth No. 2: The home must be free and clear of any existing mortgages
Many homeowners use a reverse mortgage loan to pay off an existing mortgage and eliminate monthly payments.
Myth No. 3: Proceeds are taxable
Reverse mortgage loan proceeds are tax-free.
Myth No. 4: The borrower is restricted on how to use the loan proceeds
The cash proceeds from the reverse mortgage loan can be used for any reason. Many homeowners use it to delay claiming Social Security benefits, provide more flexibility in managing investment accounts, pay off debt, pay medical expenses, remodel their home, or help their adult children and grandchildren.
Myth No. 5: A reverse mortgage is a loan of last resort
Times have changed – many affluent senior borrowers with million dollar homes and healthy retirement assets are using reverse mortgage loans as part of their financial and estate planning, often working with financial professionals and estate attorneys, to enhance the overall quality and enjoyment of life.
Approved FHA Loan Correspondent – Registered Mortgage Broker: New York State Department of Financial Services / Loans Arranged Through Third Parties / Member National Reverse Mortgage Lenders Association / NMLS# 65203