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Reverse mortgage, as the name suggests enables you receive money against equity on your home. It allows you to get money, without selling your home. However you need to repay the money after your death, while you sell your home or you stop living in the house. Many Americans, the age of 62 and above partly depend on reverse mortgage for different financial requirements like healthcare expenses, to supplement their retirement income or to pay off their mortgage.
Statutory laws pronounce reverse mortgage process generally tax-free and in most cases, without income restriction.
Types of Reverse Mortgages
Basically, there are three types of Mortgages
Single Purpose Reverse Mortgages, supported by local, state agencies or nonprofit organizations
They are low cost loans, usable for only a specific purpose, as specified by the lender. They are available to people with low to moderate income.
Federally Insured Reverse Mortgages, also known as Home Equity Conversion Mortgages (HECMs), backed by US Department of Housing and Urban Development (HUD)
Proprietary Reverse Mortgages offered by different companies
HECMs and proprietary reverse mortgages are costlier than single purpose reverse mortgages.
The value of the house is the total repayable cash and taking a reverse mortgage loan doesn't affect your other property or the property of your heirs.
Advantages of Reverse Home Mortgage
You can use the money you receive for any purpose, provided you don't take Single Purpose Reverse Mortgage loans. Pay taxes, cover insurance costs, etc. Fall in returns from CDs or IRAs force people to look for other means of income security.
There is no time limit for receiving money and you continue to receive money till you sell your property, or permanently move to a different house. You will never be asked to pay more than the value of your home and at the end of loan, your heirs will receive any surplus amount in the home equity.
However attractive it appears, a reverse mortgage is not for everyone, especially for very low income people. Such a loan can disqualify them from receiving aids, like Supplemental Security Income or Medicaid.
If you are a man or woman of 62 years or older, who is house-rich, cash-poor, you can opt for a reverse home mortgage. It will help you manage your cash flow problems, as and when it arises.
Copyright © 2006 Joel Teo. All rights reserved.
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