Is a Reverse Mortgage right for you???

What is a reverse mortgage?

If you are 62 years of age or older a reverse mortgage borrows against the equity in your home to provide you with income that may be tax free.  You would get a check each month to use as you see fit, pay bills, go on vacation or whatever you need the money for.  There is no scheduled loan repayment until the loan ends.  Also, did you know that you can use a Reverse Mortgage to buy a home???

What are the advantages of a Reverse Mortgage?

It could help to keep you financially independent and maintain your current lifestyle, as you remain in your home and keep the title to your home.  The money that you get from your RM (Reverse Mortgage) is generally not taxable as income, but check with your CPA to be sure before making a decision to get a RM. 

No payments are needed from you during your time in the home, they send money to you.  Only when the las eligible borrower leaves the home, sells the home, when they die or when a fixed date occurs otherwise known as the end of the loan term is a payment due.

A RM can eliminate all your payments by paying off any existing loans that you may have on the property through the proceeds of the RM.  There are several options available with an RM; you can select a lump sum to your account and use the money anyway you like, you can select monthly payments to you that show up in your bank account each month (until the end of the loan term) or a combination of both.  So an example might be; getting enough of a lump sum to pay off a car loan then receive monthly benefits to your bank account.

You also do not have to have stellar credit either since no payments are required your credit score is not a consideration when getting an RM.

Ok, so what are the disadvantages?

They are more complicated to understand than a conventional mortgage, so you really need to trust the person that is making the arrangements for you.  Have them explain in detail how the RM works. They are also more costly than a conventional mortgage, especially when you are first getting the RM.

Here is where a good CPA comes in handy because the money you get is typically tax free, it may affect your ability to get other public benefits such as; SSI or MediCal/Medicaid.  So be sure to check before you sign up for a RM.

I typically recommend that any RM that you may get be an FHA insured RM as these types are entirely non-recourse loans.  This means that your total liability to repay this RM is your home only. Now we are talking about the future market value of your home that is and nothing more such as other assets, income, or the assets or income of your heirs.  That is why I recommend that you talk with a CPA first.

Here are some important things to think about before selecting an RM.

How much money will I need?

Can I get that money without an RM?

Will an RM make me ineligible for future “public assistance”?

How much can I borrow with an RM?

What are the costs for getting into an RM?

Will I have to sell my home before I die to pay the RM off?

If I die will my other half have to leave or pay off the RM?

If I have to go into long term care and have to leave the house; will the RM become due?

Will there be anything left for my heirs?

Are there any fees at the end of the RM term?

Due I have to pay for other things regarding my home; taxes, insurance, HOA’s maintenance or other things.

All in all a Reverse Mortgage is not a bad thing (although they have a stigma about them that is not good) and could be right for you.  Call me or email me if you have any questions.  John Conca, Century 21 Select, 530-306-3494. This email address is being protected from spambots. You need JavaScript enabled to view it. 

Also, this information is not a substitute for the advice of an attorney or CPA.  Before you decide to get an RM, please consider your personal situation so you can make an intelligent decision regarding the your most valuable asset that you may own.