Author: Maria Alfano
Living on a pension or social security can be difficult. If you own your home you have options. This post about the 9 must-know pros of reverse mortgages for seniors that will make your decision easier is for you. You don’t need to be asset rich and cash poor anymore.
In this post, you will learn the 9 must-know pros of reverse mortgages for seniors, how a reverse mortgage works, and reverse mortgage interest rates. As a homeowner myself, I wanted to know what my options were should I decide to stay in my home as I grow older.
Financial experts have provided information on the benefits of reverse mortgages. Those benefits are described below. Also included are some great tools for tracking your reverse mortgage and other expenses so you can always be ahead and finish your month with money in the bank.
If a reverse mortgage is in your future, it is best to start planning early; know your facts; know the value of your home, all before you pull the trigger.
This post will discuss the pros of reverse mortgages.
9 must-know pros of Reverse Mortgages for seniors That will make your decision easier
Advantages of Reverse Mortgages
1 – Leverage your biggest asset
Owning a home is wonderful. Owning it outright without a mortgage is even better. As we age, our home becomes not only a source of pride and memories, it also becomes our biggest pot of money at the end of the rainbow.
In America, 95% of the population at age 65 is barely surviving on their social security payments. You can unlock the potential of your home by obtaining a reverse mortgage. With a reverse mortgage, you no longer need to struggle to make ends meet between social security payments. One of the biggest pros of reverse mortgages for seniors is the ability to leverage the equity in your home through this type of loan. Get money when you need it most from the biggest asset you own – your home. Because this is a loan it is not considered income so you won’t pay taxes on this money.
Staying on budget is quite the chore but this expense and budget planner will help you do just that. Use the color-coded stickers for different expenses like groceries, utilities, and reverse mortgages for seniors’ monthly payments. It also comes in a variety of colors. I love it because it fits nicely in my briefcase so that I know exactly what my monthly cash flow is at all times.
You can find a variety of planners like this one at Amazon, Wal-Mart, Target, and Staples/Office Depot
2 – TAx-free equity
Through a reverse mortgage, you can access up to 55% of your home’s fair market value tax-free. Yes, you heard me, tax-free! Unlocking the funds in your home’s value means you are turning something you already own into cash. You are using the value of your home to take money out of it through a reverse mortgage.
You have already paid your dues and worked hard to own a home. This is not income from employment. You are not trading time at a job to get paid, this is your own money tied up in your home. Simply cash out some of the equity you have built up in the property. The beauty is no monthly payment is required. This is how a reverse mortgage works!
Who Owns The House With A Reverse Mortgage
3 – Social Security
Great news! Taking out a reverse mortgage on your home is not likely to impact your social security payments as this is not considered income from employment. You are not working at a job. It’s like having money in the bank that saved up for years. The bank is your home. Unlike cashing out your stocks, the equity in your home is tax-free if this is your primary residence. Shares are owned by and paid through an outside organization that owns the stocks you purchased. Unlike owing stocks that belong to someone else, YOU own your home. Double-check with your financial advisor to be 100% sure you won’t be affected.
Stay on top of your budget and finances at all times with this smart all-in-one wallet. Keep your receipts while out and about without dragging along your budget planner. Transfer the receipts from this wallet to their corresponding folder when you get home from a day out shopping. Never misplace a receipt again! This wallet is perfect for daily use. Slip it into your purse and stay on top of your finances at all times.
4 – Stay in your home
A reverse mortgage allows you to stay in the home you love. Until you are ready to move or you go to meet your maker, the home you built is still yours. No one will ask you to vacate the premises. You retain the title to your home. Get much-needed funds from the home equity to pay bills, live comfortably, and don’t stress over finances again. Remain independent in your current property.
5 – Property value
As the values of properties in your area increase, yours does too. The best part of the reverse mortgage is you retain the title, the home, and you get to take advantage of the appreciation of your home. This is important if you ever need to increase the amount of the reverse mortgage. Think about it, if you took advantage of the full 55% equity withdrawal in 2015 when the house was worth $100,000, you would have received a $55,000 reverse mortgage. Fast forward to 2021. Your home is now worth $150,000. 55% equals $82,500. You have access to an additional $27,500 if you need it.
Costs Of Reverse Mortgages
6 – Interest rates
The interest rates on reverse mortgages are comparable to those of a conventional mortgage or HELOC (home equity line of credit). Depending on who you choose to be your reverse mortgage broker, will determine the rate you will pay. As an example in 2021, a 5 year fixed loan carries an interest rate of between 5.14% and 6.49%.
7 – Monthly payments
How can you pay off a reverse mortgage? Great question!
As long as you or your partner live in the home you don’t need to make any payments towards the reverse mortgage. You can choose to make interest payments but you are not required to. This is helpful especially if funds are limited. Consider making interest-only payments on the funds you borrowed to reduce the amounts owing when the loan comes due. The payments are much, much lower, and you will avoid compounded interest.
At the end of the 5-year term, you can choose to take a conventional mortgage to pay off the original reverse mortgage or renew the plan for another 5 years.
You can choose to walk away from the reverse mortgage but you will need to sell your home to pay the debt plus penalties and interest.
Staying organized is important to ensure you manage your finances effectively. Transfer those receipts from your organizer wallet to the proper section of this file folder. Because it is so lightweight and portable you can use this file organizer anywhere in your home. I use one very similar to this today. I love the different compartments to store bills and important paperwork by the month. It fits in my small office space where a big file cabinet won’t fit. It’s perfect for small homes that don’t have an office. Stow it away in a closet when not in use.
8 – Closing Costs
No matter if it is a conventional mortgage or a reverse mortgage for seniors, there will be closing costs. The difference is a big one. The FHA costs for closing a reverse mortgage can be financed over a period of time to alleviate the stress of this expense. The average setup cost for a reverse mortgage is $995.00. Many lenders will take this off the top of the amount borrowed and give you the difference. For example, you borrowed $55,000 you will receive $54,005 in your bank account. Don’t be deterred by this nominal fee. It is a standard fee for all the work required to get the money to you.
9 – Financial crisis
Need help to cover the monthly bills? As we age, we have a few more ailments than we did in our 20s and 30s. Medical expenses or funeral costs can be overwhelming when you don’t have the money. A reverse mortgage can help with these unexpected expenses. Stop the struggle and start breathing again. Your family would rather see you living comfortably and stress-free rather than sitting on a bunch of money that is not doing anyone any good. A partial legacy left behind is better than having your home seized to pay for bills you could not afford to pay for.
What’s The Catch
As with anything that sounds too good to be true, the reverse mortgage does have one main catch. The interest rates are significantly higher than those of a conventional mortgage. These will depend on your lender and may differ from one mortgage carrier to the next.
Higher rates could put you in jeopardy of higher than anticipated monthly expenses and less than expected value of your legacy. For the full list of reverse mortage negative click here.
This post talked about the 9 must-know pros of reverse mortgages for seniors, how a reverse mortgage works, and reverse mortgage interest rates. Be aware of the downside and the potential cons of a reverse mortgage as well.
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- 9 Little-Known Cons of a Reverse Mortgage for Seniors
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