One of the most important issues to consider when evaluating the reverse home mortgage is Inheritance.
Some things to clear up right off the bat:
-reverse mortgages are a loan and not a free gov grant
-the property belongs to you and to your heirs when you pass
-the amount you can receive from a reverse mtg is based on your age, home value, mtg balance, credit/income
-while there are no required payments necessary you may make payments to your reverse mtg loan
Inheritance issue will involve your family and this is a sensitive topic of discussion. For most homeowners their homes are their largest asset. Tapping into your equity for retirement can be a very smart financial decision just make sure you are familiar with all of your options and how to communicate with your heirs. Having support from your family and clear open communication can help reduce stress and will help you in the process of finding the best reverse mortgage loan.
With a reverse home mortgage, the balance of what is owed on the property grows over time, the interest on the loan you are choosing not to pay, is being added to the the balance of the home loan and if real estate prices decline or remain stagnant, less will be available for your family to inherit. This is assuming that your property prices don’t grow as high as the growing interest on the loan. If your property values increase faster than the loan interest is building this is a non-issue.
If you have no children, or your children are financially secure, than the inheritance issue is a non-issue.
If you are concerned with leaving your family as much as possible but are struggling with your monthly budget, this is not going to be an easy decision but it can be made correctly. Over 800,000 seniors before you have taken a reverse mortgage and the current satisfaction rate is as high as 95%.
If your home is paid off, you have more options. Number one, you can take a monthly pay-out. This way, what is owed on the home only goes up by the sum of the monthly payments you take as well as the interest expense and a small monthly mortgage insurance expense.
A program like this is much more sensitive to the inheritance issue in that with the monthly pay out program, the balance of the home loan grows slower than the full payout program that allows you to borrow anywhere from 50%-60% of the value of your home.
The draw back with the Monthly payment pay-out program is that you only get so much a month which means you can’t buy that car or take advantage of that great deal on a vacation as an example, but for some of us with bad spending habits, the payment program may be a good thing.
The line of credit program is also a favorite program for those home owners with paid off homes to consider because the Line of credit program allows you to draw the least amount which is $25,000, and that means that the interest expense is based only on the minimum draw of $25,000 The greatest advantage of a line of credit program for a home owner with a paid off home that has a value of $600,000 for example is that they get the best of both worlds and this is what I mean.
Even if you are eligible for a cash pay out of $300,000, you can borrow the least amount of money which is $25,000 and the other $275,000 you are eligible for actually earns interest, and if you don’t use the extra money you are eligible for, you don’t owe it on the house. Now you have to wait a full year to draw out your total Line of Credit, but the closing costs are much less and you have much more control of the forward interest expense.
So the Line of Credit program enables a qualified reverse mortgage customer of a paid off home a low cost opportunity to keep the door open for a significant amount of cash in an interest bearing account and an option to keep the forward interest expense low by borrowing the least amount of money with a reverse mortgage program that offers the lowest closing cost.
At the end of the day this is your property, your retirement, and your life. We recommend you consult with family and be open in your communication and desires for your retirement. There is no need to struggle when you have worked hard to build up the equity in your home. For many the reverse mortgage is a way to generate new retirement income while potentially still preserving an asset for your heirs.