There is finally an advantage to being an older person. It is called a reverse mortgage. Sound negative? It is, and it isn't. What is negative is only on paper, because you will be reversing your equity in your home. On the positive side, it allows you to enjoy your retirement years while keeping a safety net by retaining ownership of your home while deriving an income from it.
How is a reverse mortgage beneficial to you?
1. Provide an income for living expenses in your retirement years. The equity in your home is like money in the bank. Now that you are living a life of leisure, why not start making withdrawals and enjoy your life to the fullest?
2. It can provide money for medical costs.
3. With a reverse mortgage you retain the ownership in your home, with its increased value do to appreciation and inflation.
To qualify in the USA you have to be 62 years of age or older. You must own your home and have substantial equity in it to make it worthwhile. If you own your home free and clear you are a perfect candidate for a reverse mortgage. Typically, the older you are and the more valuable your property, the larger your reverse mortgage can be. In the USA for year 2005, rural homes have a top limit on the total line of credit of $172,632 and metropolitan homes a cap of $312,895. Also, there are reverse mortgages under federal guaranteed loans through the Department of Housing and Urban Development (HUD) as well as State and local low-cost programs. Ask about every program available to see which is the most beneficial to you.
Check out the total cost of the reverse mortgage. If you only plan on keeping your property for a few more years it is a bad financial move. To benefit from this is a long term commitment.
How it works: With a traditional mortgage, each month you have to pay the bank principal and interest. With a reverse mortgage your home pays you, either in a lump sum, a fixed monthly income payment to you, a line of credit you can draw from, or a combination of the three. In the USA the money is tax free because it is your money. How much you will receive depends on your age (the older the better), interest rates, the value of your home, and any existing mortgages or other liens or encumbrances that effect the amount of available value.
What happens eventually? When you pass on, the heirs of your estate will either sell your home, pay off the reverse mortgage, and redeem whatever remaining equity is left, or, if they choose to keep the home the reverse mortgage will stop and they will have to take out a first mortgage in an amount sufficient to pay off the amount you received from the reverse mortgage.
All in all, it is a sensible way to utilize your retirement nest egg and enjoy your golden years. The main thing people must get into their heads is that drawing down their equity in their home makes sense. We have been taught to build up equity in the value of our real estate. The idea of a reverse mortgage goes against the grain. We tend to see it as losing our net worth. What we have to realize is; to provide benefit in our old age is precisely why we built up the equity and net worth in the first place. This is the best way to utilize that equity.
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