Lack of sufficient funds can quickly take the glow off your golden years. In a perfect world, everyone should have enough money to live out their lives with the style, freedom and dignity they were accustomed to while working.
That isn’t the reality, however, for a majority of Americans today. According to the Economic Policy Institute, working-age couples, on average, have saved only around $5,000 for their retirement. Even more alarming, nearly half of families in the U.S. have no retirement savings at all.
But there is hope – a great solution for those fortunate enough to have equity in their homes – the Federal Housing Administration’s reverse mortgage loan program. It can help with immediate cash-flow problems when senior homeowners stop working and be a real “lifestyle” saver.
A reverse mortgage loan, also known as a home equity conversion mortgage (HECM), is a type of home equity loan specifically designed for people 62 years of age or older. In short, it enables them to withdraw some of the equity in their home if they need money – while they continue to live in their residence. That’s a huge advantage!
Here’s another: a reverse mortgage doesn’t require any monthly mortgage payments while you are living in your home. Borrowers do, however, have to pay their homeowners insurance, taxes and maintenance on their home. But you can use the money from your reverse mortgage for these purposes, or virtually anything else you desire, from daily living expenses to healthcare.
Borrowers can choose to receive their money in one lump sum, as a line of credit, or as monthly payments. The loan is simply repaid after the borrower dies or moves out of their home.
In the past, reverse mortgages were often criticized and thought of as a “last resort”, due sometimes, to the high costs associated with them. But increased government and financial regulation in the last few years has made them a much more viable option for an increasing number of older homeowners.
A reverse mortgage may not be for everybody, but it could be the perfect solution for you. Consider all your options and really get an education on the pros and cons of such a loan. The National Council on Aging’s booklet, “Use Your Home To Stay At Home”, is a valuable resource. Reading it is a great first step before you talk to a reverse mortgage counselor about your personal financial situation.”
Now days, people are easily living more than 20 years in retirement, and a reverse mortgage is becoming more of an income planning tool for some and a lifeline for others. Since there is no mortgage payment required for the reverse mortgage loan, the money borrowed can be used to pay down debt, eliminate other recurring payments and enhance the lifestyle of the borrower.
It also gives people who aren’t struggling but can’t afford to fund their retirement “bucket-list” extra cash to travel or pursue activities they had always wanted to do when they retired.
Here’s something else to consider: if you have not paid off your mortgage, a reverse mortgage loan can help you eliminate what is typically your largest bill – the monthly mortgage payment. It can also help relieve the financial burden of those (heirs for example) who are helping cash-strapped seniors get by. They no longer have to worry about their parents meeting monthly obligations.
Education is the key and next step in deciding if a reverse mortgage is right for you. In fact, with reverse mortgages, borrowers are required to undergo counseling with an independent third-party HECM counselor who will discuss all the features of a reverse mortgage loan as well as the borrower’s responsibilities.
During such counseling, borrower/co-borrowers or a non-borrowing spouse will learn about the different loan product options available to them and the costs associated with each, discuss their household budget and expenses, and explore alternatives to a reverse mortgage.
According to AIR, the reverse mortgage may be the most misunderstood loan program out there. That’s why getting all the facts and your questions answered are so important to your future financial health and well-being.
“Consider everything before you commit to any loan,” concludes Mary McVeigh. “Talking to a reverse mortgage counselor could turn out to be one of the best decisions you’ve ever made.”