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What is a Reverse Mortgage?
A reverse mortgage is a mortgage loan with no monthly mortgage payments to make until the home is sold or the last borrower moves out or dies. Not having to make monthly mortgage payments can greatly improve cash flow and provide the cash needed for home improvements, medical or retirement expenses, to accomplish financial and estate planning objectives and even to buy a home. Many use the improved cash flow to be able to stay in the home longer than would otherwise have been possible. The Home Equity Conversion Mortgage or “HECM” is a reverse mortgage for homeowners age 62 and over that is insured by the Federal Housing Administration (FHA).
What Is the Money Used For?
The Bethlehem borrower in the PBS Report (above) said she was “feeling the pinch” of living on a fixed income. By far and away, most borrowers use a reverse mortgage as an additional source of funds for retirement. A reverse mortgage can replace a conventional mortgage or home equity loan and eliminate mortgage payments. Whether used for additional funds or to eliminate mortgage payments, a reverse mortgage always improves cash flow.
Some take an initial advance to buy a car or to pay some bills. Others take an advance each year to pay real estate taxes and/or home owner insurance.
The National Council on Aging “Use Your Home to Stay at Home” program suggests using reverse mortgage proceeds for home modifications, ramps and other necessary expenses so you can stay in your home longer.
Financial advisors are finding reverse mortgages useful as part of a strategy to accomplish a financial objective and/or to save taxes.
Finally, homeowners age 62 and over, including those with limited income, can now use a reverse mortgage to finance the purchase of a new home. For example, a couple living in a $300,000 home could sell their home and use a portion of the proceeds as a down payment on a new home. A $150,000 down payment matched with a $150,000 reverse mortgage could result in a likely more accessible $300,000 new home and with no more mortgage payments. The portion of the sales proceeds not used as a down payment would be retained by the homeowner for future use.
Will it Keep Me in My Home for Life?
None of us know if we can stay in our home for life. How long we will live, future costs and whether our future available cash will be sufficient cannot be known, regardless of whether we have a reverse mortgage. A reverse mortgage will always improve cash flow, either by eliminating a mortgage payment, or by providing additional cash, possibly both. If you continue to pay your real estate taxes and homeowner insurance and keep the home in reasonable shape, you can expect to stay in your home as long as you choose. A reverse mortgage has no term or end date.
