Blogs in Real Estate

Many seniors do not have enough assets and equity to get along with their daily lives, especially in today’s economic climate.  Because of this, it seems to be common for people to bypass the assistance of a Certified Financial Planner in NJ, a Philadelphia private wealth management firm, or even a New Jersey financial planner, in order to come up with the best way they can see to get money: a reverse mortgage.  While this may be the best move for some people, it is important to at the least consult a financial planning guide when making this decision.

“For many seniors the equity in their home is their largest single asset, yet it is unavailable to use unless they use a conventional home-equity loan. But a conventional loan really doesn’t free up the equity because the money has to be paid back with interest.

A reverse mortgage is a risk-free way of tapping into home equity without creating monthly payments and without requiring the money to be paid back during a person’s lifetime. Instead of making payments the cash flow is reversed and the senior receives payments from the bank. Thus the title “reverse mortgage”.

Many seniors are finding they can use a reverse mortgage to pay off an existing conventional mortgage, to create money for a down payment for a second home or to pay off debt. Popularity is skyrocketing. Over the last five years the number of reverse mortgages nationwide has tripled. The uses of this untapped wealth are only limited by a person’s imagination.

For those seniors who earn low incomes but own a home, a reverse mortgage can allow them to remain in the home by creating extra income. It can also allow for remodeling or repairs and when the time comes to sell, the investment in the home can make it more valuable.

False Beliefs about Reverse Mortgages

“The lender could take my house.” The homeowner retains full ownership. The Reverse Mortgage is just like any other mortgage; you own the title and the bank holds a lien. You can pay it off anytime you like.

“I can be thrown out of my own home.” Homeowners can stay in the home as long as they live, with no payment requirement.

“I could end up owing more than my house is worth.” The homeowner can never owe more than the value of the home at the time the loan is due.

“My heirs will be against it.” Experience demonstrates heirs are in favor of Reverse Mortgages.

Virtually anyone can qualify. You must be at least 62, own and live in, as a primary residence, a home [1-4 family residence, condominium, co-op, permanent mobile home, or manufactured home] in order to qualify for a reverse mortgage.

There are no income, asset or credit requirements. It is the easiest loan to qualify for.

A reverse mortgage is similar to a conventional mortgage. As an example:

• The bank does not own the home but owns a lien on the property just as with any other mortgage
• You continue to hold title to the property as with any other mortgage
• The bank has no recourse to demand payment from any family member if there is not enough equity to cover paying off the loan
• There is no penalty to pay off the mortgage early
• When the loan becomes due, you can refinance and keep the house.

The proceeds from a reverse mortgage are tax-free and can be used for any legal purpose you wish:

• daily living expenses
• home repairs and improvements
• medical bills and prescription drugs
• pay-off of existing debts
• education, travel
• long-term care and/or long-term care insurance
• financial and estate tax plans
• gifts and trusts
• to purchase life insurance
• or any other needs you may have.

The amount of reverse mortgage benefit for which you may qualify, will depend on

1. your age at the time you apply for the loan,
2. the reverse mortgage program you choose,
3. the value of your home, current interest rates,
4. and for some products, where you live.”

Making this decision will be one of the largest that will be made in one’s life, financially of course.  Because of the gravity of the decision, it is important to find a financial advisor to make sure it is the right choice.