In recent years property values have soared, while investment
returns have been modest. This has created a situation where
a lot of seniors are finding themselves in the position of
being house rich and cash poor. These cash strapped seniors
are looking for ways to increase their retirement income while
continuing to live in their homes. These retirees find that
their options are limited, and in most cases require them
to risk their home. Enter the reverse mortgage, which can
provide many advantages over these other less desirable options.
No Payments With Reverse Mortgages
The biggest advantage of a reverse mortgages
is not having to make payments as long as you continue living
in your home. In fact, this is the number one reason that
seniors choose to borrow reverse mortgages. Almost 80% of
reverse mortgage borrowers use a reverse mortgage to pay off
their current loans in order to eliminate their house payments.
Let's say you owe $50,000 on your first mortgage and borrow
$80,000 with a reverse mortgage. This would pay off and eliminate
the payment on the first mortgage and provide you with $30,000
to use as you please.
Live in Your Home as Long as You Like
The second advantage of reverse mortgages
is the ability to live in your house as long as you like.
The great thing about this is the amount you owe on the reverse
mortgage can never be more than the house is worth. Let's
say you live to 115 and have selected to recieve a $300 a
month payments for life from the reverse mortgage. The amount
received from the reverse mortgage payments could be substantially
higher than the value of your home, yet the amount owed will
still only be the value of the home. In this situation, FHA
insurance will cover the difference.
Reverse Mortgage Withdrawal Options
Another advantage of reverse mortgages is
the different withdrawal options that a you are able to choose.
These options include lump sum distributions, line of credit,
monthly payments, or any combination of these three. So if
you were eligible to borrow $100,000 on a reverse mortgage
you could select to receive $30,000 up front to cover current
expenses, and hold the rest as a line of credit that you can
use whenever you need it. This flexibility of reverse mortgages
can significantly improve you financial independence during
Tax-Free Nature of Reverse Mortgages
Another advantage of reverse mortgage is the
tax-free nature of the loan proceeds. The American Bar Association
guide to reverse mortgages advises that generally the IRS
does not consider loan advances to be income. This means that
all the money from the proceeds of the reverse mortgage end
up in your pocket.
With these features, reverse mortgage are
definitely an option to consider if you are looking for ways
to supplement your current income. As with any financial decision,
you should seek the advice of a trained professional, a reverse
mortgage counselor, to evaluate and determine if a reverse
mortgage is right for your situation.
About the Author: Charles Kirkendall writes
about reverse mortgages and other senior financial issues.
Visit reverse mortgage for more information and resources.