Baby Boomers take note – this article could apply to you. And for everyone else – please pass this along to the people you know over age 62 who could use a little extra cash! We live in a geographic area that is influenced by New York City, and that means we are in a high cost of living location. Sometimes, people find themselves to be house rich (plenty of equity) but cash poor (earned income or retirement income is limited). A reverse mortgage is a way to buy a home at a discount or turn the equity of your existing home into usable cash while still owning and enjoying your current home.
I’ve noticed that when I mention this option to customers, the response is very mixed. People have a lot of misconceptions including they would be “giving their home away”, “losing money” or “are desperate.” Nothing could be further from the truth. To get more information, I consulted with one of my mortgage partners, Michael Domber from Fairway Independent Mortgage Corporation. It is important to note that each person’s financial situation is different, and you should consult with an expert before making any decisions. This explanation simply offers an interesting possibility to extra cash.
First of all, a reverse mortgage is a partnership with a lender allowing you to access the equity in your home without creating any required payments. The money you receive is tax free and can be a lump sum, a growing line of credit or a monthly payment made to you (hence the name reverse mortgage – because instead of you making payments to the bank, the bank makes payments to you.) This money can be used for multiple purposes some of which are: purchase a 2nd home, refinance your current home, estate planning, general monthly cash needs, investing or purchasing needed Life Insurance or Long Term Care insurance. It can also be used for monetary gifts to family, friends or charities so you can experience the result of gift giving now. Many of these types of expenses may be difficult or impossible on a fixed budget.
To qualify for a reverse mortgage, you need to be age 62 or older, your home must meet Federal Housing Authority (FHA) guidelines and you must live in your home at least 6 months of the year. Once your application is approved, you can tap into the many benefits including:
You keep the title to your home – you still own it
No required mortgage payments until the last living borrower leaves the home or chooses to sell
You will never owe more money to the bank than the value of the home
Your heirs will be entitled to the remaining equity in the home after the loan is paid back
Most people do not have any tax consequences with this loan product (again, please consult an expert for your specific situation)
You also need to be aware, since you still own your home, you will be responsible for maintenance, taxes and insurance. You can make improvements and go about living normally - hopefully with less financial stress and concern. A financial planner or mortgage specialist can go into much greater detail and speak more in depth about purchasing investment properties, using the cash value as a retirement asset, investing cash for greater return, life insurance and long term care policies, Roth conversions, bridging the Medicare gap between age 62 and 65, etc. If you have immediate questions on reverse mortgages – contact Michael Domber, Fairway Independent Mortgage Corporation, 917-656-9268, firstname.lastname@example.org (Thanks Mike!)
I hope this information has given some of you food for thought. A reverse mortgage may not be for everyone – however for some – it could truly impact the years ahead in a very positive way financially. What would you do with that extra cash? Please feel free to contact me with all your questions, concerns and topics you would like to see covered in future Pawling Record columns.
Judith “Judy” Albert is a Licensed Real Estate Salesperson for Berkshire Hathaway HomeServices Hudson Valley Properties in Pawling. Licensed in NY & CT, SRES, Relocation Certified Email your questions to email@example.com
Call 845-855-8500 Ext. 301 or 845-283-7865 Visit my website at judy.albert.bhhshudsonvalley.com