By American Advisors Group
As you pull into your driveway and up to your garage, you take a good long look at your house. The fresh exterior paint you had applied about a year ago still glistens in the sun, and the roof shingles you had installed still sit perfectly in neat rows. The bushes that line the driveway are perfectly manicured, and have grown twice as tall since the day you planted them as little shrubs.
Throughout the years, you have thoughtfully added an upgrade here, and an enhancement there, knowing you are investing in one of your biggest assets. Slowly but surely your equity is growing, and one of these days, you may want to cash in on your investment in order to help you supplement a fixed income or increase your cash flow in retirement. Fortunately, you have access to a powerful financial tool to help you do just that.
The History of Reverse Mortgages
In the early 1960s, a new loan type emerged in the mortgage industry and steadily gained in popularity due to a few distinctive features. The loan was known as a reverse mortgage, and for the first time, borrowers were introduced to the possibility that they could access their home equity without having to sell their home or pay a monthly mortgage payment. This unique home equity loan is still available today and continues to help seniors achieve financial independence.
Designed for the senior homeowner age 62 or older, a reverse mortgage defers repayment until the borrower permanently leaves the home, as long as all loan terms are met. With no required monthly mortgage payment to meet, borrowers are relieved of one of their largest monthly expenses, thus giving them more control over their finances. If the borrower moves or passes away, the funds from the sale of the home would repay the reverse mortgage loan in full, and any remaining equity is returned to the estate.
In addition to its beneficial features, consumer safeguards and federal regulations have been added over the years in order to improve the borrower experience. Today, the government-insured Home Equity Conversion Mortgage (HECM), which accounts for approximately 90 percent of all reverse mortgages in the U.S., is a federally-insured non-recourse loan. HECM reverse mortgages require that the borrower undergo independent, third-party mandatory counseling. Borrowers now must also go through a financial assessment by the lender to ensure they are capable of meeting the financial obligations of a reverse mortgage loan associated with payment of property taxes, insurance and home maintenance. Bolstered by these important safeguards and equipped with a number of valuable and unique features, this loan has helped thousands of seniors live financially independent and comfortable lives.
Why You Should or Shouldn’t Get a Reverse Mortgage
A reverse mortgage loan is not for everyone, so take the time to closely review the following considerations.
You may not want a reverse mortgage if:
- You plan to leave your home for more than 12 consecutive months, such as moving into a nursing home, or a family member’s home. Doing so will render the loan due and payable.
- You are not sure you want to age in place. Perhaps you may want to travel for extended periods or switch between your home and a vacation home throughout retirement.
- You are unsure you can uphold the financial obligations of the loan, including paying for your taxes, insurance, and home maintenance.
You may want a reverse mortgage if:
- You want to age in the comfort of your home.
- You want to access your home equity in cash, to use however you wish.
- You do not want to be tied down to paying a monthly mortgage payment.
- You do not plan to move away from your home or sell it in the near future.
- You are capable of continuing to pay your property taxes, homeowners insurance, and basic home maintenance.
- You appreciate the protection of federal insurance.
Reasons for a Reverse Mortgage
Reverse mortgage borrowers seek this unique loan for a host of wide and varied reasons. Some want to supplement their existing, fixed retirement income with additional funds. Others have used it as a ‘standby’ financial strategy to ensure ready funds as emergencies arise, or to balance their investments. Most borrowers use it to help pay off existing debt, including credit card bills and medical costs. Read the following testimonials from actual reverse mortgage customers to learn about how they used this versatile loan.
“I did it for the freedom. I asked myself, why am I not enjoying my life now? I had to let go. I am not going to take my house with me. Before, I always had to be on a budget and now I can get up and do the things I want to do: keep up my beauty regime, continue my healthy, active, and fun lifestyle, like going to Zumba every day, and decorate my home and make it pretty.”
- Lisa M. of Los Angeles, CA
“My home was paid for and I had no monthly mortgage payment, but I was having a very hard time keeping up with my bills. I had credit card debts and all my bills were currently up to date, but I knew in 3 month I was doomed! My last resort was to just sell and find another place to live. I have a nice home on a lake, have a nice neighborhood and friends, and I just don’t want to go anywhere else. I’m doing well now [after a reverse mortgage] and it looks like I’m in the black. Hooray!”
“Our bills were mounting and our income wasn’t. We needed cash. The process was as painless as any I’ve experienced. We were lucky in that we received our loan just in time. My husband now has a terminal illness and is in hospice care. I couldn’t have paid for his care without the loan.”
- Jeane W. of Sacramento, CA
“I am disabled and am on a fixed income. I had a good deal of medical bills. To be able to live month to month, I had to use my credit cards. Even though I was not late on anything and always paid more than the minimum payment, the balances on my cards kept creeping up. I now have paid off my credit cards and have money in the bank and still have my home.”
- Margaret T. of Summerfield, NC
If you think a reverse mortgage loan may be a good option for you, take the time to get educated on it–you owe it to yourself to find out. Research the facts, pros, cons, and learn about the loan process. And, make sure to read real borrower testimonials to better understand their loan experience. Speak with reverse mortgage experts: ask questions about how this loan could help you, and have them provide an estimate to see just how much you can get from your home equity. When considering any financial product, it is a smart move to fully understand what your obligations are before you decide to move forward. Following these steps will help you find the best solution for the comfortable and financially-stable retirement you have been looking for.
Sources:
Lim, Alberta. “The Pros and Cons of a Reverse Mortgage.” Equities.com. 21 July 2015. NP. Web. 22 July 2015. http://www.equities.com/editors-desk/personal-finance/real-estate/the-pros-and-cons-of-a-reverse-mortgage
“Reverse Mortgages: The Pros, Cons, and Misconceptions You Should Know”. Banks.com. 15 July 2015. http://www.banks.com/life/reverse-mortgages-pros-cons-and-misconceptions-you-should-know
“The History of the Reverse Mortgage.” www.AAG.com. NP. ND. Web. 20 July 2015. https://www.aag.com/news/history-reverse-mortgage
“Understanding 4 Key Reverse Mortgage Loan Features.” SeniorLiving.com. ND. NP. Web. Today’s Date. https://www.seniorliving.com/article/understanding-4-key-reverse-mortgage-loan-features
Understanding the Pros and Cons of a Reverse Mortgage.” AAG.com. American Advisors Group. ND. Web. 25 June 2015. https://www.aag.com/news/the-pros-and-cons-reverse-mortgages
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