Reverse Mortgages May Help Older People
By David Volz / March 1, 2014
Older people who own their homes may need money to pay bills or enjoy some of life's little extras, like a cruise. One option to consider is a reverse mortgage. This allows people age 62 and over to take out a loan against their home with no principal or interest payments to worry about. Reverse mortgages are being incorporated into retirement plans for seniors.
Lisa Flickstein, a realtor in Coral Springs, said, "It could be good for someone with a lot of equity who needs an income stream. Those who choose it could take it in monthly payments. It is excellent for the older population. People might want it to pay for a caregiver. They could stay in the comfort of their home, rather than moving to an assisted living facility. A reverse mortgage is perfect for those on retirement income. It is really popular for those who own homes."
A reverse mortgage must be taken on the primary residence. The payments come due when the homeowner no longer lives in the home as a primary residence, according to Barbara Bodner, a reverse mortgage specialist for Security One Lending in Coral Springs.
When a person who has taken out a reverse mortgage dies, the house transfers to the heirs and they can decide if they want to refinance or sell the property. They can go to the lender and tell him/her that the owner has passed away. They can get two or three extensions and have up to twelve months to pay the debt. They never owe more money than the mortgage payoff amount or the value of the property, which ever is less.
Bodner said, "People can live in the property as a primary residence. People can even buy a home using a reverse mortgage. They would need about 50 percent of the down payment of the purchase price and the remaining funds would come from the reverse mortgage. Currently, there are no credit scores or income requirements."
A reverse mortgage can help someone pay off an existing mortgage and help supplement income. It can help an individual delay taking Social Security payments. One can supplement income with a reverse mortgage because the Social Security check will increase by eight percent each year the longer the person delays receiving it. The money received from a reverse mortgage is all tax-free.
If you are paying a principal and interest payment to a bank at $1,000 a month, you would no longer have that bank payment with a reverse mortgage and the money could be used for something else, like a dream vacation. Grandparents can help their grandchildren pay for college or buy a first home by using a reverse mortgage.
A line of credit option is available with a reverse mortgage. A line of credit has a growth rate that will vary based upon the interest being charged on the balance that is owed. If you are being charged five percent on the money you have withdrawn, but are getting five percent on the funds in the line of credit, those funds increase rapidly and that becomes a savings account. There is no restriction on what those funds could be used for. If a senior needs funds for any purpose, instead of selling a portion of a portfolio, this is a time to use the funds in the line of credit, according to Bodner.
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