Reverse Mortgages are becoming increasingly popular. In fact, the National Reverse Mortgage Lenders Association states that they saw a 34% year-over-year increase in reverse mortgages in 2020, placing the number at 43,000. With this increase, we can ascertain that more seniors are viewing these loans as viable options to help supplement their incomes during retirement. Because there has been such a notable rise, it is a good time to ask yourself if a reverse mortgage would work for you. In today’s blog, Family Home Loan Texas discusses the benefits of these loans and how to know if it is the best option for you.
What Is A Reverse Mortgage
It is a loan, one that is also known as a HECM, that helps you turn your home equity into liquid, spendable funds. It is available to individuals who are 62 and older and must be taken out on your primary residence — the home you spend at least 6 months of the year in. As the name suggests, instead of paying a lender each month as you do for a traditional mortgage, the lender pays you. You can choose to receive the money as a lump sum, regular payments, or a line of credit. The amount of money you receive is based on the value of your home and how much equity you have in it. While anyone can get a reverse mortgage, it typically makes the most sense if you have fully paid off your mortgage or have at least 50% equity in it. This is because lenders will give more money when they are confident that you can pay back any outstanding balance — including interest — by selling the home when the time comes.
Why Should You Get One?
The most common reason to get a HECM is to supplement your income. Many seniors live on a fixed income, which means that large, unexpected expenses can throw a wrench into your carefully constructed budget. Moreover, as people are living longer and have more that they want to do, the fear of outliving their savings and investments is growing. A reverse mortgage allows you to keep these savings intact and draw money from your home equity, which typically stagnates. This isn’t to say that sitting on home equity is bad; rather, it can be viewed as another form of savings. If money is drying up elsewhere, why not tap into it? A reverse mortgage can help alleviate stress by not only allowing you to access more money but also by virtue of the fact that you do not have to pay any money back until you move out of your home or you pass away. This means you are completely in control and can live your life more freely.
Common Reasons To Get One
Because reverse mortgages are helpful when you need money that is outside of your budget, many seniors choose this route when they need to cover large medical expenses, home repairs, and even tuition for family members. Even when you have an ample savings account or an impressive investment portfolio, a major medical bill can wipe almost all of it out. Instead of losing your savings or having to sell stocks and bonds, a reverse mortgage can cover your expenses, allowing you to rest easy knowing you still have a sizable nest egg. Similarly, if you need to repair or renovate your home, a HECM will not only cover the cost, but you are using it to add value to your home. This means that when you or your heirs want to sell your home, you will likely receive enough money that you can pay off the loan’s balance while also keeping any leftover funds.
Reverse Mortgages As An Investment Strategy
As noted, a reverse mortgage can allow you to hold off on selling stocks to help you fund your retirement. Because these loans are only available to those 62 and older, many of the people who qualify have portfolios that they have tended to for decades. While you were probably expecting to sell some of it off to fund your golden years, this can be risky. In times of stock market volatility, selling can mean losing money. Even in times when it is stable, you run the risk of getting hit with a significant capital gains tax. Instead of this, you can take out a reverse mortgage and allow your portfolio to flourish even more. Another benefit of this is that any money you receive from a HECM is considered non-taxable income, so you will get to keep all the money.
Overall, reverse mortgages can help many seniors who want to spend their retirements free from concern about finances. With this type of loan, you are fully in control and have the power to pay it back whenever you want. You do not have to deplete your savings to cover expenses while remaining within your budget.
Contact Us To Learn More
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.