If you’re over 62 years of age and have significant equity in your current property, you may qualify for a reverse mortgage. Since the 2008 credit and mortgage crisis, many have been worried about getting reverse mortgages. Today, it’s once again a very viable option.
It’s true that in 2008, the credit markets contracted, meaning banks were much more hesitant about giving money out. Since a reverse mortgage is still a loan of sorts and adds on the fact that lenders had no idea what real estate would sell for when it hit the market, the reverse mortgage market practically dried up.
Today, the story is very different. The real estate market is beginning to recover again. Lenders have a very good idea where the real estate market as a whole is going.
How Does a Reverse Mortgage Work?
Basically, a reverse mortgage is a loan for the value of your home, minus a certain amount for the lender’s security.
For example, let’s say you own a $500,000 home. It still has a $200,000 mortgage, so you have $300,000 in equity.
A reverse mortgage might let you take out a $400,000 loan on your $500,000 home, pay off your $200,000 mortgage and keep $200,000 for yourself.
This $200,000 becomes a line of credit for you to do whatever you want with. It’s like cashing out of your home, without having to actually sell your house.
What to Consider
Before getting a reverse mortgage, here are some of the most important things to consider.
First of all, do you want to leave the home to your kids or your spouse? Getting a reverse mortgage on your home is virtually the same thing as giving your home to the bank. If you want to pass your property on, it’s not a good option.
Next, consider how much equity you have in your house. Make sure that the amount you’d get from a reverse mortgage can both cover your mortgage and give you significant spending money.
The property has to be your primary residence. It’s also important that there are liens on the property and that you don’t owe any federal debt.
Getting a Reverse Mortgage
The great thing about a reverse mortgage is how easy it is to obtain.
You don’t need to prove income. In fact, you don’t even need income. Why? Because you’re “giving” the bank your home, in exchange for money now. The bank is receiving property as compensation, rather than repayment of a loan.
All the money you receive is tax-free. You’re not earning money, you’re just taking out a loan, so you don’t have to pay Uncle Sam a dime.
Finally, you get to stay in the home until the loan term ends. Usually, the terms of the loan will allow you to live out your life, so you never have to see your home go to someone else.
Today, the real estate and credit markets are solid enough that reverse mortgages are very much a reality. If you think you’re ready for one, schedule a talk with your lender to explore your options.
