How can I use a reverse mortgage?
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The short answer is that the proceeds you receive from a reverse mortgage is your money, and you can use it in any way you like. Here are a few common uses for a reverse mortgage:
Pay the bills.
Everyone could use a little more money every month. With no monthly mortgage payments required, a reverse mortgage allows you to redirect the money you would use to pay the mortgage toward other things—everyday expenses, bills, credit card balances, or other debts.
Help pay for healthcare.
Today, many older adults want to “age in place,” so they can remain in their homes and not have to go to a senior community, an assisted living facility, or smaller house. The funds you receive from a reverse mortgage can help make it possible.
Plan for the future.
You can establish a line of credit to make sure that you’re better-prepared for unexpected expenses, or to help pay for long-term care. This financial “safety net” can help give you peace of mind today, and financial protection for the future.
Make updates to your home to fit your needs.
Making much-needed repairs, or modifications to fit your needs as you age, can help you live more comfortably and remain in your home for a longer period of time. A reverse mortgage can help make it easier to afford these updates to improve your quality of life.
Lower your taxable income.
You can avoid making taxable withdrawals from 401(k) or other retirement plans by replacing the money with tax-free reverse mortgage income.*
*Consult a financial advisor and appropriate government agencies for any effect on taxes or government benefits.
Help the ones you love.
You can use the equity in your home to help others. For example, you could use the proceeds from a reverse mortgage to help a child or grandchild with major expenses, such as college tuition or a down payment on their own home.
Sounds good, but how can I be sure it’ll work for me?
Reverse mortgages aren’t for everyone. New underwriting requirements ensure that only qualified borrowers age 62 or older can access the program to help their meet retirement goals.
At Longbridge Financial, we pledge to assess your financial situation to ensure that it’s a good fit for a reverse mortgage. We’ll take the time to ask questions about your goals, your home, and your finances. You can rest assured that if we ever feel like this is NOT the best option for you, WE WILL TELL YOU SO. Not all lenders will make that promise.
It’s a good idea to gather information and explore your home-equity options early on, so you can discuss important financial decisions with family or advisors you trust. Longbridge will provide you with the facts and information you need to decide if it’s right for you.
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Here are some questions to consider before applying for a reverse mortgage:
Do you need to tap into your home equity now or should you save it for an emergency?
Accessing your home equity is a big decision. In the past, most homeowners were advised to save equity for emergencies. But recent studies published in the Journal for Financial Planning suggest that tapping equity earlier, and retirement funds later, might be a better strategy to help extending the life of your assets. Setting up a credit line for future use can be a great way to protect yourself from downturns in the real estate market, and ensure that the equity you have today will always be available when you need it.
Are you on a fixed income with no other assets?
If your income is below $1,000 per month, a reverse mortgage might not be the best option for you. You have to be certain that your income allows you to keep up with your obligations—if you take out a reverse mortgage loan and then have trouble paying your property taxes and homeowner’s insurance, you could face foreclosure. So it’s important to have a plan in place for how you’ll pay these expenses.
How long do you and your family plan to live in the home?
A reverse mortgage makes the most sense if you plan to live in your current home for at least 3-5 years. The FHA insurance—which is there to protect you and the lender in case your loan balance ever grows to be more than your home is worth—carries an upfront premium. That premium and the closing costs associated with any home loan can make reverse mortgages an expensive way to borrow money IF you don’t plan to stay in your home.
Would your spouse or partner want to keep living in the house without you?
Discuss this question carefully with them. If either one of you are a co-borrower, both you and your partner will be able to keep living in the house even if one of you passes away. If you take out a reverse mortgage without your partner as a co-borrower, then your partner will be required to repay the loan, or take out their own mortgage to remain in the home.