For many Americans, home equity is one of the biggest assets they’ll have in their lives. It’s truly a once-in-a-lifetime investment: it has benefits that can last even after they’re gone, allowing their families and grandchildren to have a place to grow up and be happy. There’s nothing wrong with thinking so far ahead in the future. Au contraire, planning our lives can help us set specific goals and work our way to accomplish them effectively.
One of those goals will surely be the possibility to have a steady source of income after retirement. This is where another benefit of owning your own home comes in, because if you do, then you’ll have the option of applying for a reverse mortgage. Even though they are often considered a last resort, they have become a great retirement planning tool for many homeowners.
So what is it about? Reverse mortgages are simply a type of loan in which a homeowner can borrow money against the value of his or her home, receiving funds in the form of a fixed monthly payment or a line of credit. No repayment of the mortgage is required until the borrower dies, moves away permanently or sells the home. It’s literally a reversed loan. Instead of making monthly payments to your lender, your lender makes the payments to you. You can also decide whether the money will be paid in cash or not.
You’ll find that some of these mortgages are insured by the Federal Housing Administration, while others are offered by private lenders and backed by an issuing company. The former tend to be cheaper because there are no costs associated with insurance. In the end, these loans are typically repaid by selling the property away. The State would then proceed to give any remaining equity to the heirs.
Why would you want one?
For once, a reverse mortgage can increase the sustainability of your income as a retiree by allowing you to delay claiming Social Security. You don’t have to pay for it as long as you live in your home and it’s a perfect option if you want to perceive a monthly payment. You can use them to pay for any high expenses related to health or simply as a source of income. You have control over the way these payments are made, and you can even accumulate interest by choosing being paid with a line of credit.
Credit card payments can also stop being a headache for you. A working paper funded by the U.S. Social Security Administration found in 2016 that revolving credit card debt drops when seniors take out reverse mortgages. If you suffer a credit decrease in your senior years, reverse mortgages can help you recover, because they don’t really depend on your credit scores. In conclusion, the up-front sums and increased monthly cash flow provided by reverse mortgages helped seniors pay down their credit card debt.
What do you need?
To opt for a reverse mortgage, you need to be at least 62 years old. If there is an existing loan on the property, it must be paid off before applying for it. Most single-family homes, two-to-four unit owner-occupied dwellings or townhouses, approved condominiums and manufactured homes are eligible for a reverse mortgage loan. The home must meet FHA minimum property standards.
Having said this, it’s also worth to notice that the amount you’ll perceive out of these types of mortgages will depend on the following factors:
- Age of the youngest borrower or eligible non-borrowing spouse. Generally, the older you are, the more money you’ll perceive.
- Current interest rate.
- The home’s value and the lending limits.
Representing a low-cost option for retirees, reverse mortgages are an underutilized resource for the elder. If you’d like to know more about these mortgages and how wide is your range of possibilities with them, don’t hesitate to call Intercorp Mortgage Solutions. We’re ready to provide information and offers that suit your needs!
Intercorp Mortgage Solutions
Phone Number: (305) 517-5633