If you’re currently planning for retirement, you may be considering making a reverse mortgage part of your retirement plan. A reverse mortgage will allow you to cash in on your home equity, and it can be a powerful tool if you have a lot of home equity and a low amount of savings, a small 401k, or other retirement financial troubles. A reverse mortgage isn’t for everyone, however, and you should consider these facts and check what you’ll get on a reverse mortgage using a reverse mortgage calculator, such as the one on https://reversemortgagereviews.org/, before making a decision.
Reverse Mortgage Eligibility
There are a few requirements you must meet before being eligible for a reverse mortgage. For one, you and your partner must both be above the age of 62, with the amount you’re eligible to receive becoming greater the older you are when you get the reverse mortgage. You can only use a reverse mortgage on your primary residence, and your home must be completely or mostly paid off.
How a Reverse Mortgage Works
Reverse mortgages can be paid out in a couple of different ways. You can be paid in a lump sum, monthly payments, a line of credit, or a combination of these three methods. For example, many people who get a reverse mortgage opt for monthly payments with a line of credit for large or emergency purchases, such as car or home repairs or sudden medical expenses. You will still be responsible for all the financial responsibilities of a homeowner, including homeowner’s insurance, property taxes, and home maintenance.
The amount of money you have borrowed from your reverse mortgage must be paid off upon you or your partner’s death or when no borrower lives in the home any longer. Most of the time, this is done by selling the house. If the house sells for more than the amount borrowed, the remaining difference will belong to you or your heirs.
Reverse Mortgages and Taxes
Reverse mortgage loans are not considered taxable income, which is one of the reasons why they’re so attractive to many retirees. The interest is not able to be deducted from your tax returns, however, until the loan is completely paid off.
Another advantage to reverse mortgages not being considered taxable income is that they will not have an impact on your Medicare or Social Security benefits. They will limit your eligibility for other forms of assistance, however, since SSI, Medicaid, and food stamps are based on your assets rather than your income and any reverse mortgage proceeds not used immediately will count as assets.
Pros and Cons of Reverse Mortgages
There are many circumstances that will dictate whether choosing a reverse mortgage is right for you. There are relatively high upfront costs associated with a reverse mortgage, so it isn’t a good idea unless you’re planning on staying in your home for more than a few years. If you’re planning on leaving your home to your children or other heirs, a reverse mortgage will generally jeopardize their ability to keep the property. If you choose to sell your home and pay back the reverse mortgage when you’re still alive, you won’t be able to use that portion of your reverse mortgage for medical care, nursing, or other things you may have planned on.
Generally speaking, a reverse mortgage is a good idea if you want to supplement your regular retirement income and live a comfortable retirement, but it is best used in conjunction with other methods and should not be used on large costs or luxuries. If you have any questions, hiring a CPA or financial advisor will help you decide whether your particular circumstances would benefit from a reverse mortgage.
Smriti Jain is the owner and senior content publisher at Financesmarti. Financesmarti is a website where she shares a lot of useful stuff for the people and business of India. This includes small business ideas and other banking information, as well. Smriti completed her education in science & technology from Delhi University. Smriti usually has interests in digital marketing now, and she has chosen this career for the full-time opportunity. The primary purpose of starting this blog to provide quality information on the banking industry to the people.