Reverse Mortgage – Getting Started
Many homeowners have heard about reverse mortgages and how this financial tool can help them live the life they want throughout retirement. In some cases, reverse mortgages are an estate planning solution marketed to older homeowners to determine what will happen with your property as you age. But before you can decide if a reverse mortgage for your Denver home is the best option, you may be wondering: what is a reverse mortgage?
What is a Reverse Mortgage?
Reverse mortgages are different from standard mortgages. With a regular home mortgage, you pay your bank or lending institution a set amount each month as a way to buy your home. Over time, you build equity as you gradually own a larger percentage of your home until your mortgage loan is fully repaid. This is different from a reverse mortgage, where instead of paying a lender, they pay you.
A reverse mortgage allows you to convert your home’s equity into usable funds without selling it or transferring ownership to someone else. In the simplest of terms, a reverse mortgage is a loan based on the equity you have built in your home. Instead of paying a mortgage bill each month, you receive a check. With the tax-free funds from a reverse mortgage —also called a home equity conversion mortgage (HECM) — you are able to fund your living, travel or other expenses after reaching retirement age by borrowing against your home’s equity.
Reverse mortgages can be beneficial tools when it comes to preparing for retirement or estate planning. They create funds you can use today based on the value your home has accrued over time.
How Does a Reverse Mortgage Work?
The idea of getting money you can use to enjoy retirement or help with the cost of living expenses sounds great. But there’s more to reverse mortgages than just receiving a monthly check in your name.
Because a reverse mortgage is a loan, it must be paid back. This usually occurs after death, or if you choose to move out or sell your home. It is not uncommon for homes to be sold as a way to repay the reverse mortgage loan. In fact, many people consider this a part of their estate plan, especially in situations where they do not have heirs or living children may not want the home.
Since a reverse mortgage is a loan, there are additional factors to consider. Reverse mortgages come with fees and interest — many lenders charge some kind of servicing fee or premium, along with the interest accrued on your loan. And, it’s important to know that you are still responsible for paying property taxes and maintaining homeowner’s insurance. In fact, insurance may be even more important since your home is often sold later on to repay the loan.
Why Should I Consider a Reverse Mortgage?
Now that you know what a reverse mortgage is, you may be wondering if it’s the best option for you. Reverse mortgages are a beneficial option that can help you achieve retirement dreams such as traveling or participating in hobbies, or used as supplemental income to cover medical expenses, assisted living or nursing home costs and more. If you’re planning for upcoming retirement or looking to boost your retirement finances, reverse mortgages are a strong option to consider.
Want to learn more about reverse mortgages? Let Alliance Mortgage Group help guide the way. Contact us today for more information about the reverse mortgage process.