There are many reasons why you might need some extra cash in retirement. Perhaps you haven’t been able to save as much as you hoped or you thought you had saved enough but an unexpected expense threw you for a loop. Whatever the reason, there are several possible options available to access much-needed money, especially if you’re a senior.
If you are a homeowner over the age of 62, you can take one Home equity loan or Home Equity Line of Credit (HELOC). There is a third option: a Reverse mortgagewhich offers unique benefits that other options do not
Compare your reverse mortgage options online now.
Reverse mortgage benefits seniors should know
if you Consider getting a reverse mortgageConsider these benefits.
You get to stay in your home
Downsizing is one way to reduce your budget in retirement, but you may not want to. If you prefer to age in place or leave the family to your children, a reverse mortgage can allow you to afford it. You can even use the funds to make your home more accessible.
If you think you might benefit from a reverse mortgage, see what you might qualify for here.
You will not pay tax on the funds
While you can use reverse mortgage funds as supplemental income, the IRS does not consider them income for tax purposes. You won’t owe taxes on them, and since they don’t count as income, they won’t interfere with your Social Security or Medicaid benefits. This can help maximize your income and reduce your expenses in retirement.
You will no longer have mortgage payments
When your lender disburses your reverse mortgage, they first deduct the balance you owe on your mortgage. While that means you won’t get as much cash, it also means you won’t have to make mortgage payments — at least for now. Eliminating this monthly payment can go a long way toward easing some of the pressure on your monthly budget.
The lender will need payment eventually — after you sell the house, move or die. In this case, you or your heirs must repay the loan, either by selling the home or using out-of-pocket proceeds (such as with estate funds). Remember that you must continue to pay home insurance and property taxes as long as you live in the home. If you don’t, your home could be in foreclosure.
“Reverse mortgage loans typically must be repaid when you move out of the home or when you die. However, if the home is no longer your primary residence, you fail to pay your property taxes or homeowners insurance, or keep the home in good repair. No,” explains the Consumer Financial Protection Bureau online
Remember that you will collect interest every month from the time the loan is disbursed until you (or your heirs) pay it off. This means your balance will increase and your home equity will decrease. Consider this when deciding if a reverse mortgage is right for you.
There are no restrictions on how you can use the funds
How you use your loan money is entirely up to you. For example, homeowners using reverse mortgages:
Pay off Supplement Social Security benefit arrears Cover medical expensesPay for long-term careFund a trip to make their home more accessible
Keep in mind that if you use the proceeds for IRS-approved improvements to your home, you may be able to deduct the interest if you sell the home.
You can get funding in multiple ways
Unlike other home equity options, reverse mortgages offer several ways to receive your funds: a lump sum, line of credit or monthly payments. Which option is best for you depends on what you want to use the money for.
For example, if you want to fund a one-time expense, such as paying off a loan, a lump sum may be best. A line of credit is good for ongoing expenses, such as medical expenses, while a monthly payment is ideal for supplementing your income. The flexibility to choose your payment method helps you get the most out of your reverse mortgage.
As with any financial product, there is Advantages – Disadvantages Make sure you understand all of them to determine if a reverse mortgage is right for you. If you need additional guidance, a mortgage specialist can help.
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