The reverse mortgage is a financial instrument available to homeowners aged 62 years old or above. It takes the form of a loan which, as the name implies, works in the opposite way to a standard mortgage. With a regular mortgage, homeowners make monthly payments to a lender. Under the terms of a reverse mortgage, retirees are able to convert some of the equity in their home into cash, and they instead receive payments.
Reverse mortgages were initially introduced as a way to help retirees on a low income take advantage of any wealth they might have accumulated in their home. For many of these people, a reverse mortgage provides a lifeline, allowing them to cover basic living expenses and healthcare costs. However, there are no restrictions on how this money can be used.
The reverse mortgage is therefore a literal lifesaver for some senior Americans, but it is an option that too many remain unaware of. Read on for more information about the reverse mortgage and to find out whether it could benefit you.
Tax-Free Advance
What’s better than receiving a cash injection? Receiving a tax-free cash injection, of course! When the homeowner first takes out a reverse mortgage, they will be given cash from the lender. This is, for all intents and purposes, an advance payment. It is usually, but not always, tax-free. This money can be particularly useful for retirees who have expenses piling up, and not having to worry about the usual tax obligation reduces a common source of stress when seeking a financial boost.
Are There Any Risks or Downsides?
With any financial instrument or investment, there is always going to be some element of risk and unpredictability. The reverse mortgage is definitely a valuable tool for many people, but it isn’t the best option for everybody.
For example, you should be aware that interest will be added to the outstanding balance of the loan every month. Also, whatever money the homeowner receives through their reverse mortgage reduces their equity in the home. Consequently, should the home owner decide to move, or if they die, the equity that they leave behind will be reduced. This can be a nasty surprise for any heirs of beneficiaries.
If you are considering taking out a reverse mortgage, you need to make sure that you have fully understood all the terms and conditions beforehand. Many reverse mortgages come with some significant upfront fees, so you need to be prepared for those.
Is it Right for Me?
Retirees who are in need of some extra cash can benefit greatly from a reverse mortgage. For these people it can provide a lifeline by allowing them to cover their living expenses more easily. Many older Americans have complex healthcare needs and ballooning living expenses. If you think that a reverse mortgage could help you, have a look at those offered by American Advisors Group to get an idea of what a typical reverse mortgage looks like.
A reverse mortgage is a very useful financial instrument for many American retirees. Securing loans can be a stressful experience, especially for the older generation. The reverse mortgage can provide a less stressful option for many borrowers. Just make sure to check that there isn’t a more appropriate form of loan for you.
