With the growing popularity of Reverse Mortgages across the country, more and more seniors are asking themselves, “Do I need a Reverse Mortgage?” This question can be answered by using several different means. This article will discuss several of the most common questions in discovering the usefulness of the Reverse Mortgage for different individual situations as well as some suggestions to beginning the process.
1) “I don’t have a mortgage! Why would I get a Reverse Mortgage?”
This is one of the most common disputes that arise when discussing Reverse Mortgages. A financial goal for many seniors is the removal of all mortgage debt to the home, but this methodology is becoming outdated with the creativity of home equity programs that have recently come about, including the Reverse Mortgage. One of the fears of taking out a loan on a mortgage-free home is the threat of default and foreclosure. The Reverse Mortgage is one product that removes this threat. There are never any payments required for a Reverse Mortgage as long as you live in the home. It allows you to utilize the equity available in the home without the threat of losing the home, and without the added burden of monthly payments.
2) “I don’t need anything.”
A Reverse Mortgage is commonly used to remove a current monthly mortgage payment, to help a senior out large medical or credit card debt, or to secure an investment or an insurance product. However, the phrase “I don’t need anything” is a statement that is frequently used without looking at all the safeties and possibilities of having a Reverse Mortgage. A Reverse Mortgage can work as an extremely effective “safety net.” It can establish a large, extremely liquid, and high interest earning account that can be counted on in the event of an emergency or an opportunity. Right now, Reverse Mortgage credit accounts, which function very similar to checking accounts, earn well over 6.7%. This extremely useful when a medical crisis occurs, or a timed financial opportunity presents itself, and the senior will not have to affect any of their savings, investments, or income.
3) “Why would I give my house away?”
This is a common misconception that many seniors have when learning about Reverse Mortgages. First, a Reverse Mortgage Lender does not take your home or ownership of the home. There is no transfer of deed or title. The senior retains all rights of ownership they previously enjoyed and the only change is that the Reverse Mortgage becomes a lien on the property. The senior may sell the home and move at any time, and if the borrower should pass away, the home will be passed on to their heirs as designated in the will.
4) “I am on Social Security and Medicare. I don’t want to lose those benefits.”
The largest benefit of the Reverse Mortgage is its guarantees from the Federal government. The program is regulated and facilitated by the Department of Housing and Urban Development and due to this, all Federal benefits like social security and Medicare are not affected whatsoever by the additional income generated by the Reverse Mortgage. The government classifies the proceeds from Reverse Mortgage as equity, not income.
This also has the benefit of being 100% Tax-Free! You will not report any additional income on your tax return and the reserve of thousands of dollars of liquid funds will not alter your tax-bracket.
These are some of the more common questions regarding Reverse Mortgages that are presented in the early stages of acquiring the loan. Almost every applicant will ask themselves one or all of these at some point. Here are some actions that you can take to help in your decisions to move forward with a Reverse Mortgage.
1. Meet with a HUD Counselor – People looking for more information should meet with HUD-approved counselor. These meetings are free of charge an offer the senior the chance to speak with an impartial, third party expert who can answer questions and recommend a lender. They will also provide you with a mandatory certificate that will be required to start the process, which is valid for 6 months.
2. Use an online reverse mortgage calculator – These are sites that will allow you to enter in some basic information about your personal situation and get some preliminary numbers that will be standard with any lender around the country. These are extremely useful to get a basic idea of what you can receive so you know what to expect when you speak with a lender.
3. Speak to a Reverse Mortgage Lender – One benefit of the Reverse Mortgage program’s regulation by the government is that all lenders use the same interest rate, lending limits, and closing costs. There is very little discrepancy in the numbers involved in a Reverse Mortgage; so most decisions about lenders are based on the quality of service that is provided.
These are some of the issues that seniors deal with when they are evaluating whether or not to acquire a Reverse Mortgage. For many, the opportunity to increase income, fund a long-term-care insurance policy, get a head start on their loved one’s inheritance, or maximize the growth of their assets are reasons as well. Remember, the Reverse Mortgage works because it does not require payments to be made while the owner lives in the home, and a Reverse Mortgage does not affect the continued appreciation of the homes value. It will let a savvy senior have two assets working for them (the home’s value and the home’s equity) instead of one.