A reverse mortgage is a loan against the equity in a home that comes due only when the homeowner dies or sells the real estate. No payments are due otherwise. A reverse mortgage can assist a homeowner to pay off an existing loan and provide funds for basic needs such as heat, food, health insurance and prescriptions. In essence, it provides cash flow to meet a budget that can’t be met by current income from social security, pensions and IRAs or 401k distributions.
Marco Scioletti, Senior Loan Advisor at Loansnap.com, indicates “to qualify for a reverse mortgage, you must be at least 62, own your home and live in it as a primary residence. Credit rating and income have no bearing on loan approval. The amount that can be borrowed depends on the age of the youngest borrower, the value of the home and its location.”
AARP‘s websiteAmerican Advisors Group (AAG), http://www.aag.com/reverse-mortgage-calculator/ can give you an approximate amount that can be borrowed in your situation. Two caveats: you won’t get a mortgage for full value of your home, and the older you are the better for higher loan amounts.
Money received from a reverse mortgage is not taxable and won’t affect social security or medicare. It can be a valuable tool to allow the elderly to avoid falling behind in their bills and into bankruptcy, stay in their home, and meet expenses in difficult economic times.
Michael Langford, CEO of Course Pilot Financial, believes there are two main categories of people for whom reverse mortgages are most useful:
“Those in need – The reverse mortgage offers people who may have under funded their retirement or are under pressure from unanticipated medical bills and so on to tap into the equity of their home. While this may be an unpalatable solution to some, as people work so long to pay off their home, the option of risk-free, tax-free income derived from a reverse mortgage should be on the table for people in need.
Those with options – For those people who have well funded retirement plans and are not in need of an emergency source of income the reverse mortgage may be especially attractive. Why realize a capital gain if you can tap a tax-free source of income? Why withdraw money from an investment portfolio during a down market? In a down market situation using a reverse mortgage may add longevity to ones investment portfolio by reducing or postponing withdrawals.”
Whatever your needs, before applying for a real estate reverse mortgage consult your financial planner, mortgage lender and real estate attorney. They can discuss the process with you and enable you to make an informed decision.