Reverse Mortgage Advantages: 7 Benefits For Seniors

By James Young on April 22, 2014
Reverse Mortgage Advantages: 7 Benefits For Seniors

If you are a senior aged 62 and over, and own your home, you may have been curious about television or radio commercials with well-known spokespeople enticing you to borrow against your home’s equity with a reverse mortgage.

Once targeted primarily at older home owners in need of improved cash flow with few alternatives, today’s reverse mortgage programs hold some benefits that may appeal to a wider group of homeowners.

Reverse mortgages are typically available for those owning a single-family home or a multi-family unit (duplex, triplex or quad only) as long as one of the units is occupied by the borrower. The program is also available for certain condominiums or manufactured homes.

Reverse mortgage loan repayment is due, with interest, when a homeowner moves out, sells his or her home, or dies. Loan payment also comes due prior to these events if a homeowner fails to pay property taxes or home insurance premiums.

Once a loan comes due, in most cases it will be left to the homeowner’s heirs to sell the house and pay off the balance. They are allowed to keep any remaining proceeds after selling the home once the loan balance has been paid.

Reverse mortgages have steadily grown in popularity, with nearly 600,000 households estimated to have an outstanding reverse-mortgage loan, according to the National Reverse Mortgage Lenders Association, a Washington DC trade group.

Reverse Mortgage Advantages

If you are on the fence about whether or not to take equity out of your home through a reverse mortgage, here are seven advantages that should enter into your decision:

  1. Flexibility. The loans don’t have to be used for a specific purpose. Although they are most often used for home improvements, repairs, healthcare expenses or home care that may otherwise be out of reach, they can be used for anything.
  2. Security. With a home equity line of credit, you run the risk of losing your home if you default on your loan. However, this is not the case with a reverse mortgage. Payments on your loan are not due until you permanently leave your home, and therefore there is no risk of losing your home because of nonpayment. You are required to keep your home in good repair, as well as pay for insurance and taxes, however.
  3. Insulation. With a reverse mortgage, you are insulated from dropping home values. Even if you receive more than your home is now worth, you will not have to repay more than your home’s market value.
  4. Tax Free. It may surprise you, but the money you receive from a reverse mortgage is typically tax-free, because it is a loan that will be repaid. This applies whether you receive your reverse mortgage payout as fixed income or as a lump sum.
  5. Interest. Choose a home equity line of credit for your reverse mortgage and your money will accrue interest, a significant advantage for borrowers.
  6. Place to Live. With a reverse mortgage, you continue to own your home and enjoy all the benefits of home ownership. In fact, you can live in your home as long as you want.
  7. Payment Options. How you receive your loan money through your reverse mortgage is up to you. You can choose to take your money in the form of a lump sum for those large purchases or obligations, or take a credit line, annuity or even a combination of these.

Government Programs

While there are a number of reverse mortgages available in the marketplace, only one is offered by the federal government. Known as the Home Equity Conversion Mortgage (HECM), choosing this mortgage means your reverse program will be insured by the federal government. You must go through an Federal Housing Administration (FHA) lender to participate in this program.

In the past, only homeowners who had no other means of improving their financial picture were advised to take out a reverse mortgage. This was because of the high upfront fees involved, which were sometimes as high as 5 percent of the total loan amount.

However, there are now more options available to seniors. New types of reverse mortgage products generally have lower upfront borrowing fees than those of the past.

Lower fees have made reverse mortgages attractive even to those who have other financial assets because it has allowed these seniors to delay selling off depressed investments and use a reverse mortgage to improve their cash flow.

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About James Young

My name is James Young- I love red wine, sailing, and playing guitar. I believe that everyday is truly a gift. I'm blessed to live five minutes from the sand in the beautiful city of Long Beach, CA. When I'm not assisting homeowners, you'll find me belting melodies with friends around a campfire, wandering the halls of an art exhibit, or watching ESPN re-runs until the sun comes up. So what am I doing here, you might ask? In a couple of sentences- I'm passionate about empowering first-time and experienced home buyers to make their dreams a reality. Whether it's saving thousands on your home loan, buying your first home, or acquiring your first investment property, I'm always here to help. Don't hesitate to ask questions, and please remember to "share the love"! :) #loveloans #loverealestate #lovelife!