Reverse mortgages offer a unique way to move forward into your retirement with extra income.
Dorothy, the main character of the movie, The Wizard of Oz, once exclaimed, There s no place like home! Even in a world much different than the one that existed when The Wizard of Oz was filmed, that old adage still holds true. If you ve lived in a home even for a short amount of time, it s probably filled with memories that will always be with you. Your walls are filled with pride and covered in photographs which document life s many accomplishments. All of these memories, the good and the bad, come together to form your home. The place you ve lived, and maybe even raised a family in, has given you a lot over the years, and with reverse mortgages, it can give you even more.
As many Americans plan for retirement and turn to alternative sources of post work income, one that may come to mind is a reverse mortgage. The concept of a reverse mortgage is rather simple: someone pays you, based on the value of your home. There are many options available as to how you wish to receive this money. You may choose to take monthly payments, take a lump sum, or receive a line of credit.
When you purchased your home you probably had to make mortgage payments. As you did, you gradually decreased the amount of debt owed and gradually increased the amount of equity in your home. Reverse mortgages are the opposite. As time goes by, you gradually receive more and more money from the lending company. Thus, your debt increases and your equity decreases.
The purpose of a reverse mortgage is to have an added source of income, especially if you plan on selling your home near the end of your life or after you die. It allows you to receive the equity from your home and enjoy it in retirement. The amount you receive in the reverse mortgage is based on the value of your home, current interest rates, and your current age. Once you ve received the amount your home has been determined to be worth, less any fees charged by the lender, you then owe that amount to the lender. You can pay that back any way you wish, but in many cases, the idea is to sell your home and repay the debt. Often, this is done by an estate after a person passes away and still has debt. As long as you re permanently living in your home, you don t have to pay the lender back.
Reverse mortgages do have a lot of details and can get complicated, which is why it s best to ask a financial professional for advice before looking into them much further. While they may have a lot of technical details, they don t have many requirements. In general, you must be 62 years of age or older, and own your own home. Those are the two basic requirements of a reverse mortgage. Beyond that, there are a few other basic things to keep in mind.
Reverse mortgages do have upfront costs, just like a regular mortgage. They also have monthly service fees. However, all of the money you receive from the lender is tax-free. To get a better estimate of how much a reverse mortgage would pay you, it s wise to meet with a financial professional.
Unfortunately, reverse mortgages aren t for everyone. Reverse mortgages can provide a valuable resource to individuals when the circumstances are right, but there are many considerations to be taken before choosing one, including: fees, restrictions, estate planning considerations, need for income, other assets, health considerations, insurance coverage, and so on. Often times a reverse mortgage is a last resort for income for many individuals and many individuals decide that reverse mortgages aren t for them. And in some situations, for instance, if you want the house to stay in your family for many generations, then it may not be for you.
There truly is no place like home and the reverse mortgage reminds us of that. It s one of the few places on earth that can be filled with so many memories. So if a reverse mortgage sounds right for you, contact a financial professional today and discuss your options for proving the old adage right, there s no place like home.
Lawrence D. Sprung, CFP of Mitlin Financial Inc., is a Registered Representative with Securities America, Inc., a Registered Broker/Dealer, member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc., a SEC Registered Investment Advisory firm. Lawrence D. Sprung, Investment Advisor Representative. Mitlin Financial Inc. and Securities America are unaffiliated. Written by: Securities America, Inc. Distributed by: Lawrence D. Sprung.
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