When you live in your house for a long time, you build up equity in it. With each mortgage payment you make — especially when paired with rising home values — you are increasing the amount of money you have in your home. While this will certainly benefit you if and when you decide to sell your house, you can also tap into it before selling and reap your hard-earned benefits. This is particularly valuable for seniors who want to remain in their homes but would like to take advantage of the equity they have built up. Luckily, a reverse mortgage can help you tap into your home’s equity while remaining in it for as long as you like. In today’s blog, Family Home Loan Texas discusses the ways you can use home equity to free up spendable funds.
Reverse Mortgage Basics
Before delving into the ways that you can use your home equity, it’s important to go through the details of a reverse mortgage. A reverse mortgage, also known as a HECM, is a loan available to individuals who are at least 62 years old. It can only be taken out on your primary residence and, as the name suggests, instead of paying a lender each month as you do for a traditional mortgage, they pay you. A major selling point of this loan is that you do not need to pay back any money you receive until you either stop living in the house or pass away. Another benefit of taking out a reverse mortgage, especially compared to selling, is that the money you receive is considered non-taxable income. When you sell, you will likely have to pay a significant amount in taxes, leaving you with less money.
1. Use A Reverse Mortgage For Home Improvements
Many seniors live on a fixed income, which makes paying for unforeseen expenses more difficult. Home repairs and improvements aren’t always within your normal budget, so a reverse mortgage is a great way to pay for them. Not only are you improving the house you are likely spending your golden years in — making it better suited to your needs — but you are also raising the home’s value. This means that if you decide to sell down the road or your heirs decide to sell it, you will be getting more money back. When it comes time to pay back the reverse mortgage, you will likely have more money left over to pocket after the sale.
2. Purchase A Second Home
When you get a HECM, you can choose how to receive your money. You can opt for a lump sum, regular payments, or a line of credit. With a lump sum, you will receive all the money at once, and when you do, you could use it to make a down payment on a second home. Whether you want a cabin in the mountains or a villa on the beach, you are free to spend your money as you please. If you go this route, it is important to note that you must spend at least six months of the year in your primary residence; this is a major term of a reverse mortgage, and if you do not, the loan could default. When you are not in your second home, you can rent it out to increase your income. You could also use your funds to make a down payment on an investment property.
3. Pay Off Debts
Having outstanding debts is stressful for everyone, but it is especially difficult for seniors on a fixed income. Most of your budget is probably going to basic expenses so adding in other payments is difficult to swing. If you have several types of debt, particularly high-interest debt, it is ideal to consolidate them to get a lower rate. From there, you can use a HECM to pay off the entire balance or a major part of it. While you are using a loan to pay off another loan, your interest rate from a reverse mortgage will be lower and you do not have to pay it back until you move out of your house. This gives your more control over your finances and related decisions.
4. Improve Your Portfolio
Many seniors have built up investment portfolios over the years, and it can certainly be tempting to sell stocks to help fund retirement. However, in times of stock market volatility, isn’t always the best option, as you could lose money. Even if the stock market is doing well, you could still get hit with a capital-gains tax. This is all to say that selling stocks to support your retirement isn’t always the best option. Rather, you could take out a reverse mortgage instead of selling stocks. This allows you to keep seeing gains from your portfolio and maintain the peace of mind that it provides. It is also a more secure choice, as house prices most often appreciate, meaning that you will most likely see a good return on your investment when either you or your heirs decide to sell.
Contact Us To Learn More About A Reverse Mortgage Loan
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.