The baby boomer demographic is on the rise, and for these retirees, having the funds necessary to enjoy the same quality of life is a challenge when there isn't a steady flow of income anymore. A reverse mortgage is a way for people 62 years (minimum required age) and older, to use the equity in their homes to finance the gap from income lapses.
WHAT IS A REVERSE MORTGAGE
Essentially, a reverse mortgage allows a homeowner to use the equity from their home to finance and maintain a certain lifestyle. For older retirees, these monies may pay for home care while aging in place, or finance a vacation to visit distant relatives. Whatever the equity is used for, there are certain things to consider when applying for a reverse mortgage loan.
IT IS A LOAN
First and foremost, a reverse mortgage is a loan. Whatever terms are agreed upon with the lender, the homeowner has to pay the monies back, usually with the sale of the home should the homeowner have to leave the home, or passes away. If a spouse passes away while under contract with a reverse mortgage lender, the surviving spouse will have to repay these expenses.
REVERSE MORTGAGE- A BAD REPUTATION
That said, if it is determined that your financial portfolio is in good standing by a trusted accountant, a reverse mortgage can be a convenient way to pay for necessities such as medicine or doctor's visits, with little to no impact on the loan. However, financing expensive travel or paying off other loans may reduce the equity to a level where the home is lost. Consult an accountant before considering a reverse mortgage, and create a plan of how exactly the equity is to be used.
WHO IS ELIGIBLE
Not everyone is eligible for a reverse mortgage. Borrowers have to be a minimum of 62 years old, live in the home as their primary residence, have paid most of their traditional home loan, and the home has to be in good shape. These are guidelines through the Federal Housing Administration (FHA), and this program requires potential borrowers meet with a reverse mortgage counselor to determine costs, and to make borrowers aware of all aspects of the loan.
SHOULD SPOUSES CO-BORROW
Many spouses choose to apply for a reverse mortgage together to ensure a spouse can continue living in the home even when the other spouse has to move out for care outside the home. However, the amount paid to the borrowers is reduced each month because the life expectancy of both borrowers is factored into the equation. On the flip side, if only one spouse is listed as the borrower, should that spouse have to move out, the other spouse will not receive any further payments because the borrower MUST live in the home while receiving reverse mortgage payments.
ARE YOU ELIGIBLE
There are many options when it comes to considering a reverse mortgage. If you are older than 62, have little to no debt, are in considerably good health for your age, and understand that a reverse mortgage is a loan, but are comfortable that the amount of equity you use will easily be repaid, then a reverse mortgage may open up funds for you to enjoy life during your retirement years.
Here are some helpful links to help you determine whether or not you may qualify for a reverse mortgage loan.
FHA – http://www.fha.com/