By Alberta Lim –
As a mature woman either anticipating retirement or already enjoying it, financial independence has never been more important. You have worked hard your entire life in in different aspects; perhaps establishing a successful career, raising happy children, taking care of aging parents, nurturing a loving marriage, and turning a simple house into a beautiful home your family loves. And, for the last thirty years or so, you have been diligent in making payments on your monthly mortgage, consequently building up one of your biggest assets: your home equity.
As you reach retirement, your financial independence, as well as the need to increase your cash flow and supplement your now-fixed retirement income, is becoming more important with each day. Fortunately, having earned quite a bit in home equity, you may be in the right position to leverage a powerful retirement planning tool to help you live comfortably in your golden years.
The Reverse Mortgage and Its History
Reverse mortgage loans have helped thousands of seniors age 62 and older tap into a portion of their home equity to help fund retirement. Prior to the introduction of these loans, senior homeowners had two options to help access their home equity. They could sell the house, which meant letting go of the home they love. Or, they could assume a second mortgage, and get further weighed down by an increased monthly mortgage payment.
In the early 1960s, the first reverse mortgage was written in order to help a widow afford to remain in her home after her husband passed away. Since then, this loan has grown in popularity due to unique benefits not offered by other loan types: to convert a portion of home equity into cash, while continuing to live in the home without a monthly mortgage payment.
Reverse Mortgage Pros and Cons
Like any other loan, there are pros and cons that you should learn about in order to determine if a reverse mortgage may fit for you.
- You may access a portion of your home equity in cash: either as a lump sum, in monthly installments, as a line of credit, or any combination of the three.
- You may age in place and live in your home for as long as you desire, as long as all loan terms are met (which include continuing to pay for homeowners insurance, property taxes, and basic home maintenance).
- You remain the owner of the home and keep its title.
- The Home Equity Conversion Mortgage (HECM) reverse mortgage is protected by government insurance, backed by the Federal Housing Administration (FHA).
- No monthly mortgage payments are required, because repayment is deferred until the borrower permanently leaves the home.
- Even if the loan balance surpasses the value of the home, federal insurance protects the
borrower from ever owing more than the value of the home when sold.
- A lien stays on the home until repayment of the reverse mortgage loan.
- Vacation homes and investment properties do not qualify.
- The borrower must not leave the home to live elsewhere for more than 12 consecutive months, or the loan may become due and payable.
- Federal insurance on the loan means that there is an insurance premium that is rolled into the loan.
- Borrowers must have earned a significant amount of equity in the home to qualify.
Is a Reverse Mortgage Loan Right for Me?
It is fairly easy to assess whether or not a reverse mortgage loan can help you.
A reverse mortgage loan may not be a good fit for you if:
- You anticipate having trouble fulfilling loan obligations, such as continuing to pay for homeowners insurance, property taxes, and basic home maintenance.
- You foresee the possibility of leaving your home for more than 12 consecutive months in the near future. If so, the loan may become due and payable.
- You have very minimal equity, or a large mortgage balance.
However, a reverse mortgage loan may be just right for you if:
- You desire to access a portion of your home equity.
- You do not want to assume another monthly mortgage payment.
- You want to age in the comfort of your home.
- You are confident you can fulfill all loan terms and financial obligations.
- You have no intention of selling your home or moving out in the near future.
- You appreciate the protection and security that comes with HECM loan federal insurance.
Now that you understand the basics of reverse mortgages, you may want to take a deeper look into the loan process and details. Make sure to learn as much as you can about it to make an informed decision. Feel free to research further. Ask questions and get answers from a reverse mortgage expert, who can outline the details of the loan and run estimates for your specific situation. Arm yourself with as much information as possible, to help build a better picture of whether or not this loan is right for you.
As a writer for American Advisors Group, the leading U.S. reverse mortgage lender, Alberta Lim is committed to sharing news and information seniors can use to improve their quality of life.
“Reverse Mortgages: The Pros, Cons, and Misconceptions You Should Know”. Banks.com. 15 July 2015. http://www.banks.com/life/reverse-mortgages-pros-cons-and-misconceptions-you-should-know
“Understanding 4 Key Reverse Mortgage Loan Features.” SeniorLiving.com. ND. NP. Web. Today’s Date. https://www.seniorliving.com/article/understanding-4-key-reverse-mortgage-loan-features
Understanding the Pros and Cons of a Reverse Mortgage.” AAG.com. American Advisors Group. ND. Web. 25 June 2015. https://www.aag.com/news/the-pros-and-cons-reverse-mortgages