Sandi Boucini & Michelle Granger - RE/MAX Executive Realty



Posted by Sandi Boucini & Michelle Granger on 2/10/2021

Photo by 3D Animation Production Company via Pixabay

If you’re retired, own your own home and have trouble making ends meet, a reverse mortgage may seem like the answer to prayers. You get to stay in your house and you’ll have some extra cash to see you through. Before you run to the nearest lender, however, consider the downside as well as upside to these instruments.

What is a reverse mortgage?

A financial institution lends you money, either a lump sum, a stream of payments or a line of credit, against the equity in your home. Unlike most loans, however, you’re not required to pay it back on a regular basis. You can let the loan ride until you die, move or sell the home, at which your home is sold and the proceeds pay off the loan.

While there are several flavors of reverse mortgage, most are insured by the Federal Housing Administration (FHA) under a program called the Home Equity Conversion Mortgage (HECM).

Am I eligible for a reverse mortgage?

Everyone on the title must be 62 or older. The home must be your primary residence, and your equity needs to be at least around 50 percent. Also, you have to attend consumer counseling before signing up.

What are the pros of a reverse mortgage?

  • You stay in your home. You keep the title until you sell, move or die.

  • There are no required monthly payments. Any previous home loans are paid before you receive your proceeds.

  • If you choose to make payments, there’s no prepayment penalty.

  • The money you receive is not taxable, nor does it affect your Social Security or Medicare eligibility.

  • The loan is non-recourse. Regardless of your loan balance, you'll never have to pay back more than the house is worth.

What are the cons of a reverse mortgage?

  • Unless you make payments, the loan amount will continue to increase. It’s unlikely you’ll pass the home on to your heirs.

  • You must continue to pay taxes, insurance and necessary maintenance and repairs. Failure to do so can lead to foreclosure.

  • There are upfront and ongoing mortgage insurance premiums as well as a loan origination fee. These (and interest rates) trend higher than for other mortgage loans.

  • Your favorite bank may not offer reverse mortgages. Most issuers are small banks, credit unions and online lenders. Some lenders have made misleading claims that understate the risk.

  • If you go into a nursing home you will have to sell the home and pay off the loan.

  • While Social Security and Medicare are not an issue, reverse mortgage income can affect your eligibility for Medicaid and Supplemental Security Income.

Should I apply for a reverse mortgage?

If you plan to stay in your home well into retirement and are having trouble with ongoing expenses, it may be right for you. However, if you aren’t cautious about what you’re getting into, or if you’ll have trouble paying taxes, insurance and upkeep even with the extra money, it isn’t a wise choice.




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Posted by Sandi Boucini & Michelle Granger on 10/23/2013

It doesn't matter how old you are someday you will hopefully retire. According to Pew Research Center, there are 75 million baby boomers in the United States and retirement is coming quick or may already be here. So if you are a boomer or just thinking about retirement and feeling like you are not prepared there is still time to get on the right track. Here is a retirement checklist to help get you started: Know how much you need to live The first step in planning for retirement is to know how much money you will need to live. Make a list of all of your expenses and your sources of income. If your costs outweigh your guaranteed income you may need to reevaluate your costs. Rethink your retirement savings plan Unless you have a pension you will not have a set amount of money to live on for your retirement. If you have a 401k or other employer-sponsored retirement plan you will need to plan to make that money last. It may be best to meet with a financial planner to determine ways to maximize your income stream. A financial planner may also help you consolidate your retirement accounts. Understand your social security benefits Depending on the age at which you start social security withdrawals you may have less money than you thought. Social security withdrawals before the age of 70 could result in 20-30% less in benefits. Deciding what age you will retire and when you will draw on your social security benefits is an important decision. Plan for inflation Like it or not the cost of living goes up. The cost of health care also continues to rise and without proper planning for inflation in living costs and health care your retirement income could run out sooner than you planned. A good start for planning is to know that over the past one hundred years the average inflation rate has been 3.4%. Have a will It is important to establish a will and/or living will. This will help you and your family make important decisions regarding health care, long term care and estate issues. Tackling retirement planning ahead of time will help you begin the next chapter of your life worry free and allow you to plan for the fun times ahead.




Categories: Money Saving Tips