Reverse mortgages help many senior citizens enjoy more flexible retirements. These loans can free up the much-needed money to fund great trips, projects, or even assist in covering large, unexpected expenses. By turning some of your home equity into liquid assets, you can leave behind a life of being house-rich and cash poor. In addition to freeing up funds, a reverse mortgage can also provide significant tax savings that will help you stretch your money as far as possible. In today’s blog, Family Home Loan Texas breaks down reverse mortgages and describes their tax benefits.
Reverse Mortgage Refresher
A reverse mortgage, also known as a HECM, is a loan in which a lender pays you based on the equity you have in your home. It is available to individuals 62 or older and can be taken out on your primary residence. The amount of money you are able to receive is based on the value of your home and your age. The older you are, you will receive a larger percentage of your house’s value from a lender. A significant benefit of this loan is that you retain full ownership of your home and you can continue living in it for as long as you like.
While interest does accrue, you do not have to pay any of it — or the principal — back until you move out of the home. Once you either pass away or move, the money paid back will come from the sale of the house. You or your heirs get to keep any profit left from the sale. Ultimately, this means that once you get your money, you are free to spend it as you please without having to worry about paying it back.
How To Receive Your Money
HECMs provide those who are eligible with a lot of flexibility to enjoy their retirements, and this extends to the ways you can receive your funds as well. If you need a large amount at once, you can choose to get your payment as a lump sum. If you want extended peace of mind or want to cover ongoing payments, you can opt for regular installments, a line of credit, or a combination of both. Line of credits can be particularly advantageous because you only accrue interest on the money you use.
Why Not Sell Your House Instead?
A common question surrounding reverse mortgages is “If you need the money, why don’t you sell your home instead?” While this is one way to turn your home equity into cash, it isn’t feasible for many people. Many people who are of retirement age have been in their house for a long time; it is where they raised families and created the memories of their lives. Their house is their home, and they do not want to leave it. What is the point of turning your home into liquid assets if that is where you want to continue living?
Additionally, selling your home can have significant tax implications. Houses tend to appreciate quite significantly over time, especially in Texas at the moment, and while you might get a lot of money on the sale, you will take a major tax hit due to the capital gains tax. In some cases, you could end up owing hundreds of thousands in taxes, which means you will no longer be living in your life-long home, and the money you get won’t go nearly as far as you likely anticipated. You will then have to spend a large portion of your proceeds on finding a new place to live. While this certainly works for some people, it is not an attractive option for many senior citizens.
Reverse Mortgage As An Alternative
For those who want to remain in their house and receive helpful funds, a reverse mortgage is a great way to accomplish both. Another major benefit is that any money you get is considered non-taxable income because it stems from your existing home equity. This means that anything you get is truly yours, and you do not have to pay any taxes on it. This helps you budget more accurately and will help you determine if a HECM is the right financial move for you. It is important to keep in mind that you will have to pay some closing costs up front in addition to standard fees that are associated with any sort of loan. However, when compared to the money you’ll receive that won’t have to be paid back until you move or pass away, you will still come out very far ahead.
Empowering You To Make The Right Decision
It is important to be fully informed before starting the reverse mortgage process. This way you can understand everything the loan entails and the ways it can benefit your specific financial situation and unique needs. This loan isn’t the right option for everyone, although many seniors who are on a fixed income and own their house can gain a lot from one. To help ensure you have the necessary information to make the right decision, the first step of the process is meeting with a HUD-sponsored counselor. This is a knowledgeable, independent party whose only goal is to make sure you are fully informed about the loan, your obligations, and the ways it can impact you. This is a mandatory step for everyone, and it helps you rest assured knowing that you are making the best possible decision for yourself and your family. Once you meet with the counselor, you will be able to know if a HECM is the right move. If so, a loan specialist will walk you through the rest of the process, and you will be able to get your money quite soon.
Contact Us To Learn More Reverse Mortgage Benefits
If you have questions about tax savings or any other benefits, please reach out to us today. Family Home Loan Texas was founded by loan originator and long-time mortgage professional Rob Bramer. Rob has helped clients secure the loans they need both locally and nationally and can help you get the loan you need to live life on your terms. Call 1-800-990-LEND (5363) to speak with Rob about a reverse mortgage loan and to receive a free, no-commitment consultation.