Maintain Your Lifestyle Without Increasing Your Debt, Essay Example

Financial constraints are a common issue for many retirees. If you are having trouble maintain your lifestyle and dealing with rising expenses in your retirement, there is one financial instrument you might want to consider first: the reverse mortgage loan. Backed by your home equity, the reverse mortgage loan can help you achieve the financial flexibility you seek. Reverse mortgages can be used to fulfill a variety of financial goals, such as providing additional income, paying off conventional mortgages, helping with unexpected medical expenses, and as the means to take a well-earned vacation.

A reverse mortgage is a loan based on the equity of a home. If you get a reverse mortgage, you will receive payments based on your home equity. One of the most important features of a reverse mortgage loan for you, the homeowner, is that the amount you owe can never exceed the equity of your home. Here at Advisors Mortgage Group we only use the Federal Housing Agency (FHA) Reverse Loan, backed by the U.S. government. There are a number of ways to receive the money, and with some of these it is entirely possible to receive more than your actual home equity. Let us suppose you take out a reverse mortgage for twenty-five years, and the balance comes to over half a million dollars. At that point the house is sold, either by you or by your heirs, and it comes to $300,000.00. Under the terms of the loan, the lender must accept the sale price of the home and consider the loan paid in full. The lender will have no claim on any other income from your estate.

There are three main qualifications for eligibility. First, you must be 62 or older. Second, you will need to either own your home or have paid off most of your mortgage. Third, you will need to be able to keep paying property taxes and insurance after you get the loan. If you can meet these three requirements, you are likely to qualify. Of course, you may well be asking yourself about paying the loan back. This takes us to another one of the more important features of a reverse mortgage loan: no payments are due on the loan until after you have left the house (Kraemer and Kraemer 5, Grantian Network 35). As a rule, a reverse mortgage loan will not come due until everyone who is on the title for the property has not lived there for six consecutive months. What this means for you is that you can take out the loan and not worry about paying it back until the next major step in your life.

A common myth is the idea that by taking out a reverse mortgage, you will ensure you do not leave any estate. This one is overwhelmingly up to you, and does in fact depend on how you manage your assets. Simply put, you can leave your heirs an estate, so long as you have an estate to leave them (Lyons and Lucas 12). If you leave your home to your heirs they will need to pay off the reverse mortgage, but there are several options open to them for doing this. A reverse mortgage is a remarkable loan, but it is still a loan, and like all loans it does come due.

Of course, your heirs will have the option of simply paying it off and being able to enjoy the benefits of owning the home, but most people will probably prefer other options. They can sell the home to repay the loan, and any difference left over will be theirs to do with as they please. Another option is for you to leave another part of your estate, such as other valuables, savings, and investments, specifically for the purpose of paying off the loan. You may want to do this if your heirs have an attachment to the home and want to keep it in the family. Finally, your heirs will also have the option of taking out a regular mortgage on the house to pay off the reverse mortgage. They can then rent out the home, in whole or in part, to offset the costs of the regular mortgage (Lyons and Lucas 60).

As a mortgage banker for thirty years and a reverse mortgage specialist for twelve, I’ve helped many people maintain or even increase their lifestyles with a reverse mortgage loan tailored to their situation. Here at Advisors Mortgage Group we help people take out reverse mortgages for two main reasons: on the basis of needs, and on the basis of finance. Needs-based reverse mortgages are taken out by people who need additional money, perhaps to cover unexpected expenses. Financial-based reverse mortgages are taken out for a number of reasons. People use them to extend their portfolios, to extend their social security benefits, and to reduce their estates in order to ensure their heirs have fewer tax ramifications.

With all of this in mind, let’s talk about some of the options open to you if you decide a reverse mortgage is right for you. First, there are adjustable-rate and fixed-rate reverse mortgages. The former type may be annual or monthly, but in both cases it will be based on the LIBOR index. The fixed-rate mortgage is based on the 10-year benchmark bond. There are also different options for taking the money. You can take it as one lump sum payment, based on how much equity can be taken from your home. Another option is a smaller lump sum payment, followed by monthly payments. You can also dispense with the lump sum and simply take out monthly payments. Finally, you can opt to receive a tenure, based on a formula determining how much you’ll receive every month for the rest of your life. You will continue to receive tenure payments either until you sell the home or until you pass away.

I’ve seen reverse mortgages help people achieve many different goals. There was my friend Kevin, a magazine publisher who retired and took out a reverse mortgage on his New Jersey home. He and his wife were moving to Florida, and the mortgage in their New Jersey home was mostly paid off. They used their reverse mortgage to buy and renovate a home in Florida, and the only additional expenses they had to take on were the taxes and insurance on their Florida property. After a couple of years they sold their New Jersey home at a favorable price, paid off the reverse mortgage, and took out a reverse mortgage on their Florida home.

Another use of reverse mortgages is to help people stay in their homes as they grow older and need assistance. This is an issue I’ve seen again and again, and a reverse mortgage can make a real difference. For example, I knew a very wonderful woman with an elderly mother who was in poor health and could not look after herself. She contacted me and explained that she was trying to keep her mother in her mother’s own home, but that would require daily visits from healthcare workers, and the quotes were between $800.00 and $1,200.00. Living with her mother was not an option, and neither was her mother going to live with her. We took out a reverse mortgage, and the mother started receiving an additional monthly payment alongside her pension check and her social security check. The money covered the cost of the healthcare workers for the last three years of her life. The daughter called me and thanked me for helping her to keep her mother in her home.

You may be considering a reverse mortgage to get some extra monthly income, to extend your portfolio, or to meet other goals. Whatever the case, a reverse mortgage can be a powerful tool for enjoying the lifestyle you want in your golden years. Here at Advisors Mortgage Group, serving your needs and helping you meet your goals is our priority. We’re a family operation, and we care deeply about helping you meet your goals and leave a legacy for your heirs. If you are interested in a reverse mortgage, we will be glad to sit down with you to go over your situation and help you determine the best option to meet your needs. We will help you understand the process and make the choice that’s right for you.

Works Cited

Grantian Network. Guide to Reverse Mortgages: Discover How to Get a Senior’s Mortgage Without Ever Having to Make Monthly Payments. Dover, DE: Grantian Network.

Kraemer, Tammy, and Tyler Kraemer. The Complete Guide to Reverse Mortgages: Turn Your Home Equity into Instant Income! Avon, MA: Adams Business, 2007. Print.

Lyons, Sarah G., and John E. Lucas. Reverse Mortgages for Dummies. Hoboken, NJ: Wiley Publishing, 2005. Print.