More and more people are becoming aware of reverse mortgage as an option for tapping their home’s equity.
Here are 6 reverse mortgage facts to know before using this type of loan to supplement retirement income.
1. Reverse Mortgages Are for Everyone (Over 62-Years-Old)
There are some restrictions on who can apply for a reverse mortgage. The primary borrower must be 62 years old, and must have enough home equity to qualify. There will also be a financial assessment to determine that the borrower is fit to uphold the requirements of the loan.
Reverse mortgages are used by many different types of households, from high net worth couples and individuals who are riding out market swings that are impacting their other investments, to families that need additional monthly cash flow to help make ends meet.
There’s no one reason to take a reverse mortgage, and there’s no one person for whom the loan is the “right” option.
2. It’s Just a Loan: You Continue to Own Your Home With a Reverse Mortgage
Many people erroneously believe that the bank or the government owns your home when you get a reverse mortgage. A reverse mortgage is a loan, and reverse mortgage borrowers hold the title to their homes throughout the entire course of the loan.
Once the loan becomes due because the borrower passes away or moves, the borrower or his or her heirs will be responsible for repaying the loan. Often, this is done through the sale of the home, and if the value of the loan is greater than the value of the house, the amount of the loan not paid by the sale of the house is paid by mortgage insurance. Reverse mortgage borrowers do not have to pay more than the value of the home when the loan comes due.
3. Your Heirs Have Options
Although it’s often the case that heirs sell the home to repay the loan, that is not their only option. In the case where a borrower has passed away, heirs are entitled to pay off the reverse mortgage through whatever means they choose.
If they are able and wish to repay the loan with outside funds and keep the home, that’s up to them to decide.
Furthermore, it is important to note that research indicates that most families would rather get a reverse mortgage than lose independence or compromise their quality of life.
4. Reverse Mortgages Are Getting More Popular
Three trends are making reverse mortgages more popular than ever before: 1) Americans have not saved enough. 2) Housing values are at all-time highs. 3) The HECM Reverse Mortgage has had many recent modifications to make it a safer product for seniors.
5. Timing a Reverse Mortgage Can Mean More Money
When there are low interest rates and high housing prices, it can be a good time to get a reverse mortgage.
6. Home Equity Is the Biggest Source of Wealth for Most Americans
According to the Federal Reserve, 80 percent of Americans’ non-financial assets are represented by their homes, and a recent report published by the Brookings Institute reports that home equity is the biggest source of credit for most Americans.
Home equity may be your biggest asset, and therefore, your most viable option for financing your retirement. A reverse mortgage is one way to tap into this home equity.