Many older people have a mortgage-free home, but little extra
monthly cash. How can you tap into your home equity without selling
your house or making additional loan payments? Consider a reverse
mortgage.
Many older people have a mortgage-free home, but little extra monthly cash. How can you tap into your home equity without selling your house or making additional loan payments? Consider a reverse mortgage.
What is a reverse mortgage? Essentially, it’s a loan where you borrow against your home in installments. Each month you receive a payment representing loan proceeds, and the loan gets bigger instead of smaller a “reverse mortgage.” For homeowners with paid-for homes but little cash, reverse mortgages can provide the money needed for property taxes and other home expenses that might otherwise force them to sell their homes. The older you are and the higher the value of your home, the bigger the reverse mortgage monthly payment for which you can qualify. Because you still own your home, you still pay the property taxes, insurance, and upkeep. The reverse mortgage payments are not taxable, and they don’t count as income for social security eligibility purposes. When the loan is repaid, any interest paid is then deductible.
When do they make sense? You must be 62 or older to be eligible for a reverse mortgage. Retirees with limited income but substantial home equity are most likely to find these loans beneficial. From an estate planning perspective, keep in mind that interest accrues throughout the life of the loan. When you no longer occupy your home, the lender recovers the principal of the loan plus the accumulated interest.
Where do I find them? Check your local bank or financial institution. Free information is also available from Housing and Urban Development and AARP. If you’re interested, shop for a reverse mortgage as you would for any other loan. Then go with the lowest price by comparing interest rates, upfront fees, and other charges. Reverse mortgages are a creative way to cash out the value of your home without having to sell it. They’re a way to put your home equity to work when you need it.
