Being able to have a comfortable retirement primarily depends on how much money you have saved for it. Social security does not pay enough to make it comfortable for most people. If you do not have much money tucked away in a 401(k), IRA, or in savings, you may want to consider a reverse mortgage.
How It Works
The longer you live in a home, the more equity you have in the home. For many years, you have been making mortgage payments to the bank. A reverse mortgage allows you to receive a considerable portion of your equity back from your lender on terms that you decide and you will no longer need to make a mortgage payment.
A reverse mortgage means that you will continue to live in your house as long as you or your spouse needs it. You will keep the title. Once you no longer need it, the home belongs to the bank that gave you the reverse mortgage.
You determine when and how much money you will receive. You can supplement your Social Security benefits by getting monthly payments, a lump sum, or a combination of payments, and you also have the option to receive payments and open a line of credit.
Since you are responsible for the upkeep of the home, as well as paying taxes, insurance, utilities, etc., you can use the extra money to keep your home in excellent shape. If you do not already have money for these purposes, the bank will keep the amount of money equal to the expected cost of these things. You simply draw on it as you need it, and the money you receive from a reverse mortgage is tax-free.
A reverse mortgage works the opposite of a mortgage. Instead of paying down the interest and principal, both will build during the course of the mortgage. Eventually, you will owe the entire value of your home to the lender. If you still need the home, you will not receive any more money from that time on. You or interested family members could buy the house back if they wanted to keep it. If you die with money still available, your benefactors will receive it.
Using the Money
You can use the money you receive from a reverse mortgage for any purpose you want. If you have increasing medical bills, you can use the money to pay them. You could also use it to remodel your home, fix it up, or even take a vacation.
Only those who are 62 or older can get a reverse mortgage. Taking out a reverse mortgage too early may mean you run out of money too soon – most likely at a time when your medical bills are getting larger. Your home must be your primary residence and it needs to be in good shape. It will be inspected when you apply. You also need to catch up on any federal debt, such as student loans or income taxes.
Before getting a reverse mortgage, you will need to have considerable equity in your home. Many of them are federally insured, but be very careful of scams. Look into it carefully and consider your options. It can be a wonderful help for some, but may not be the best decision for others. In order to help make sure you understand what this decision involves, the Department of Housing and Urban Development (HUD) requires all borrowers to take a HUD-approved counseling session.