Welcome to “Ask the Pros” – where your questions meet the wisdom of those who understand the ins and outs of reverse mortgages! If you have questions about unlocking the power of your home equity, navigating the ins and outs of reverse mortgages, or making informed decisions about your financial future, you’re in the right place.
In this exclusive series, we tap into insights and expertise directly from our wonderful team members at Longbridge Financial who are helping to shape the reverse mortgage industry each day. Our team of seasoned professionals are committed to fielding common questions, unraveling complexities, and providing invaluable insights to empower you on your financial journey.
Whether you’re a homeowner considering a reverse mortgage, a financial advisor seeking new perspectives, or are simply curious about the unique retirement tool, “Ask the Pros” is your go-to source for reliable insider information. Join us as we explore the nuances of reverse mortgages, debunk myths, and uncover strategies for leveraging home equity in retirement.
Our next pro in this series is George Blackmore, a Senior Reverse Mortgage Consultant here at Longbridge Financial. He’s part of an amazing team of loan officers who are passionate about getting to know our customers and their unique financial goals, so they can offer tailored solutions. We sat down with George to get an inside look at reverse mortgage funds – including how much you can access, how you can receive them, and how you can use them. Let’s dive into the Q&A!
Q: How much money can I receive from a reverse mortgage?
A: It’s no surprise that this is the first question that comes to mind for anyone considering a reverse mortgage. The amount you can receive, which is referred to as the “principal limit,” primarily depends on three key factors: the value of your home, your age (or the age of your younger spouse, if applicable), and the “expected rate.” The expected rate is something many people aren’t familiar with, and its connected to a financial benchmark called the 10-year Constant Maturity US Treasury bill, plus the margin. This rate significantly impacts your available funds from a reverse mortgage, so having a clear understanding of its effects is critical. More on that in a moment!
Here’s an overview of how the reverse mortgage equation works when it comes to calculating your available funds. Generally, the more your home is worth, the more money you can access. Of course, the amount of equity you have in your home also plays a part. And, because reverse mortgages have strict age qualifications, your age will also play a crucial role. Typically, the older you are, the more of your home’s value you can tap into. And then there’s the expected rate; if the rate is low, it allows you to access a higher percentage of your home’s value. Conversely, a higher rate means you might access a lower percentage.
Keep in mind that everyone’s situation is different, so it’s always a good idea to speak with a qualified loan officer who can offer a tailored estimate based on your specific circumstances.
Q: What are the different distribution options available?
A: When it comes to accessing the funds from your reverse mortgage, you have several flexible options,1 allowing you to tailor your financial strategy to fit your unique needs.
The first option is to take a lump sum of cash upfront at the time of closing, which is generally limited to about 60% the first year, with access to the remainder of your funds after one year. This provides you with immediate access to a portion of your home’s equity, which can be especially useful if you need to cover urgent expenses or make a significant purchase. It’s important to note that the limit on how much you can withdraw in the first year is designed to help protect your long-term financial security. After that initial year, the remaining funds become available for you to access and use as needed.
Another option is to leave the funds in a line of credit (LOC). This approach offers a distinct advantage: as long as you meet the terms of the loan, the unused funds in your LOC will grow over time at a government-guaranteed, non-income taxable rate.2,3 This means that if you don’t need the money right away, it can increase in value, giving you more financial flexibility in the future. Many homeowners find this option appealing because it offers both security and potential growth.
The third option is to receive monthly disbursements, which can provide you with a steady, reliable source of funds. This can be particularly beneficial if you’re looking to supplement your retirement income and your cash flow to cover ongoing expenses, such as medical bills or home maintenance costs. For example, one of my recent clients decided to opt for monthly disbursements as a way to help cover the costs of home healthcare for himself and his wife. This approach allowed them to maintain their quality of life and age in place in the home they love without the stress of depleting their savings.
One final option is to use a combination of the three methods I’ve outlined in a way that maximizes the benefits of the loan for you. I’ve had clients decide to take out an initial lump sum and then leave the remaining funds in place as a growing LOC for the future.1,2 Of course, each of these options has its own set of benefits, and the right choice will depend on your individual circumstances, financial goals, and plans for your retirement. When you work with a lender, like Longbridge, you’ll discuss these options with your loan officer who can help you decide which strategy best aligns with your needs and goals.
Q: How can I use the reverse mortgage proceeds?
A: The flexibility of how you can use the proceeds from a reverse mortgage is one of its most appealing features. There are no restrictions on what you can do with the money, giving you the freedom to use it in ways that best suit your retirement.
Another one of the key benefits of reverse mortgage funds is that they are income tax-free.3 Additionally, these proceeds typically do not impact your Social Security or pension payments, allowing you to enhance your financial well-being without reducing your other sources of income.3
How you choose to use your funds is entirely up to you. Some people find that reverse mortgage proceeds are an excellent way to fund long-desired home improvements, ensuring their home remains comfortable and well-maintained. Others might use the money to pay off existing bills or consolidate debts, providing peace of mind and a more secure financial footing.
For those who have always dreamed of travel, reverse mortgage funds can make that dream a reality. Whether it’s visiting children and grandchildren or exploring new destinations, these funds can open up opportunities for adventure and connection.
One of my clients, for instance, used their proceeds to purchase a motorhome. This has allowed them to travel the country, enjoying the freedom and flexibility that comes with life on the road. Their story is just one example of how reverse mortgage funds can help turn dreams into reality.
Ultimately, how you use your reverse mortgage proceeds is a personal decision. Whether it’s enhancing your home, securing your finances, or fulfilling lifelong dreams, the choice is yours.
Q: What are some of the real benefits of reverse mortgages?
A: We’ve touched on a few of the benefits already but one that we haven’t covered are that with a reverse mortgage, monthly mortgage payments are optional. So, as long as you keep up with your property taxes, insurance, and home maintenance, you don’t have to make a payment to your lender each month – freeing up your cash for other bills or to bolster your savings.
But the benefits of a reverse mortgage extend beyond just financial gain – they can significantly enhance your overall quality of life. Many of my clients have shared how relieved they feel after closing on their reverse mortgage; this newfound peace of mind is often one of the most immediate and impactful benefits.
For many, just knowing that they have access to cash if they need it provides a sense of security that reduces the stress of day-to-day life. One gentleman I worked with mentioned that he’s finally sleeping better at night, free from the worry that used to keep him awake. This kind of relief is something that can make a real difference in your life, allowing you to enjoy retirement with less financial anxiety.
In addition to eliminating the burden of monthly payments,4 a reverse mortgage gives you financial flexibility. Like we’ve discussed, whether you want to handle unexpected expenses, invest in home improvements, or simply enjoy the comfort of having a financial cushion, the extra cash can be a powerful tool for achieving your goals.
For me, it’s inspiring to see how a reverse mortgage can transform someone’s life, providing not just financial support but also emotional and psychological benefits. Imagine what it could do for you – how it might alleviate your worries, help you sleep better at night, or give you the freedom to pursue the things you’ve always wanted to do.
Why not explore what a reverse mortgage could offer you? We would love to hear your story and see how this financial solution could bring you the peace of mind you deserve!
Thank you, George, for sharing your insights and providing valuable information about the ins and outs of reverse mortgage proceeds!
If you’re interested in learning more about reverse mortgages and to find out if you qualify, contact our team today. Our reverse mortgage consultants will get to know you and your financial situation to help you determine whether a reverse mortgage is the right fit for you. Empower your financial journey – reach out to Longbridge Financial now to make informed decisions about unlocking the Power of Home®️.
