The Ins and Outs of Reverse Mortgages
There is a way to get money from your house that a lot of people don’t know about, and many financial institutions don’t offer–reverse mortgages. Some financial planners say reverse mortgages can help with retirement planning and reduce estate taxes–others say there are less-expensive options. Reverse mortgages allow people with limited cash flow and an illiquid asset–a house–to turn the asset into cash.
In a reverse mortgage you take a loan against your house but you don’t repay for as long as you live there. You can take the loan proceeds all at once, in regular monthly advances, or at times and in amounts that you choose. You, or your estate, pay the money back–plus interest–when you die, sell your house, or permanently move out of your house.
Since you make no monthly payments, the amount you owe grows larger over time. However, you never can owe more than your house’s value at the time the loan is repaid. You don’t need a minimum amount of income to qualify for a reverse mortgage–you could have no income and qualify. All borrowers must be at least 62 years old.
Reverse mortgages generally must be first mortgages–there can be no other debt against your home. They can have tax consequences, affect eligibility for assistance under federal and state programs, and have an impact on the estate and heirs of the homeowner.
Be sure you understand reverse mortgages and compare them to other options before deciding. To learn more your credit union or contact AARP at 800-424-3410 or www.aarp.org.