Understanding the Basics of Reverse Mortgages

Published On: October 18, 2023506 words2.5 min read

Reverse mortgage programs have been around for decades, and some of the earlier programs lacked proper government oversight, so they got a bad rap. Today’s Reverse programs are highly regulated and considered a safe way for seniors to tap into their home equity. You’ve put a lot of time and money into your home over the years, and the Reverse mortgage allows your home to pay you back.

Reverse Mortgage, how does it work?

A Reverse mortgage is just like any other mortgage, except you don’t need to pay it back until both husband and wife have left the home. You borrow against the equity you’ve built, receiving funds as a lump sum, monthly payments, a credit line, or some combination. You retain ownership of your home, and you can leave your home to your children if that’s your wish. Homeowners aged 55 and above can access reverse mortgages.

Reasons to Consider a Reverse Mortgage

Retirement brings relaxation, reflection, and new pursuits. A reverse mortgage supports these aspirations:

  • Supplement Retirement Income: Funds from a Reverse mortgage are typically tax-free and can be used for daily expenses.
  • Drop your mortgage payment: How much further would your retirement go without having to make a mortgage payment every month?
  • Address Unexpected Costs: A little extra cash for medical emergencies and home repairs will add peace of mind.
  • Pursue your Dreams: Whether it’s long overdue travel or a hobby you’ve been dreaming of, a reverse mortgage can finance your passions.

Benefits of a Reverse Mortgage

  • You retain ownership of your home!
  • Financial Flexibility: Convert your home’s equity into accessible cash without having to make monthly payments.
  • Tax-Free Proceeds: Loan proceeds are typically tax-free.
  • Save taxes:  With a bit of help from a Reverse mortgage, you canwithdraw less money from your retirement, which typically saves on taxes and preserves your nest egg.
  • Peace of Mind: Reverse mortgages are highly regulated by the Federal Government, and you can pay back the money at any time with a prepayment penalty.
  • Easy qualifying:  Many borrowers with significant home equity who’ve been turned-down for a conventional mortgage can get approved for a Reverse mortgage.

Understand a Reverse Mortgage’s Pros and Cons

  • Unlike a traditional mortgage, the Reverse mortgage does not have to be repaid until the last borrower has left the home.
  • A Reverse mortgage may reduce your home’s equity over time, depending upon appreciation and other factors, which may affect potential inheritances.
  • Reverse mortgages, like all mortgages, come with certain costs and fees.

Seek Guidance

Before diving into reverse mortgages, we recommend counseling from an experienced professional. Get all your questions answered up-front so there are no surprises.

Everyone’s financial situation is different. Some Borrowers may prefer a home equity loan or downsizing over a Reverse mortgage. Speak with an experienced professional and explore all the options.

If you’re a Conejo Valley resident considering a reverse mortgage, let the friendly professionals at Summit Mortgage and Investment Company guide you. We’ve been serving Conejo Valley residents for more than 30 years.

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