Your Home Can Supplement your Retirement Income.
Many seniors share three common life goals; having enough success to provide for their children, saving for retirement and leaving a legacy for their children and loved ones to enjoy.
Some seniors have been able to accomplish all three; however, many have seen their efforts derailed as a result of unforeseen life events such as the current economic conditions. Some of these seniors are now struggling with enjoying retirement and still leaving a legacy for their children and loved ones. It comes down to deciding between saving the most in life, or getting the most life out of their time.
A reverse mortgage has become a viable solution for some as safe, secure, beneficial financial tool that allows one to remain in the home free of mortgage payments while also providing monthly income. The additional income can supplement social security, meet unexpected medical expenses, make home improvements, or enable a safeguarding of retirement savings, and in turn leaving something for their children. A reverse mortgage can also be set up such that benefits be used to purchase a downsized retirement home.
The Home Equity Conversion Mortgage (HECM) is FHA’s reverse mortgage program that enables seniors to withdraw some of the equity in their home and pay-off their existing mortgage balance while living in their home. The title and ownership of the property remains with the homeowner until they sell the property or pass away. If the house is sold, the outstanding reverse balance would be paid and the remaining equity belongs them or to their heirs. If they retain, the remaining balance would be paid through refinancing.
Eligibility requirements include must be at least 62 years of age, have lawful residency in the US and own the home outright or have a low mortgage balance that can be paid off at closing. The home must be considered the primary residence with owner listed on the title for a minimum of six months prior to application. Applicant must participate in a consumer information session given by an approved reverse mortgage counselor to ensure full knowledge and understanding of the program.
A reverse mortgage is a government insured loan that does not need to be repaid as long as one of the borrowers continues to live in the house, keeps the taxes and insurance current, and maintains the property. A reverse mortgage secures the home and eliminates any possible risk of foreclosure due to an inability to make a monthly mortgage payment. No matter what unexpected life event occurs, you can rest at night knowing that your home is secure.
Generally, the older the applicant, the lower the interest, thus more that can be borrowed. Three factors are taken into account when determining the amount of available equity; age, current interest rates, and the appraised value of the home. From this calculation, closing costs are deducted, any existing liens are paid and remaining equity is disbursed to the homeowner. HUD has provided a reverse mortgage calculator to assist lenders in determining the exact amount available.
After any existing liens and fees are deducted, the homeowner has five options for disbursement of remaining equity. 1) Tenure: equal monthly payments as long as at least one of the borrowers continues to occupy the property as the primary residence. 2) Term: equal monthly payments for a fixed term selected by the homeowner. 3) Line of Credit: homeowner is able to draw from this line of credit at times of choosing until the line is exhausted. 4) Modified Tenure: combination of line of credit with monthly payments for as long as borrower remains in the home. 5) Modified Term: combination of line of credit with monthly payments for a fixed term selected by the homeowner.
Some seniors obtain a reverse mortgage just to eliminate their monthly mortgage note and to save for unexpected events or emergencies. Some use the funds to travel, supplement social security or to preserve retirement savings. This is the equity that the senior has earned, so it’s tax free income for personal enjoyment and does not affect social security or Medicare benefits. Interest accrues only against the money that is drawn out.
Obtaining a reverse mortgage is a big decision. Local experts can help guide anyone through this process.