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Moving Forward with a Texas Reverse Mortgage
No one plans to run out of money during retirement. But with today’s longer life spans, seniors often need more cash to help them get through their golden years. No one can predict the financial problems that may arise, such as the need for home repairs or medical procedures. Just one major setback could drain more of those hard-earned retirement dollars than anyone expects. Fortunately, seniors have some options to improve their financial situation during retirement. One option is the reverse mortgage. This loan allows senior Texans to convert a portion of the equity in their homes into cash without selling the home or incurring a monthly loan payment. The money can be used to supplement an income, make a purchase, or cover upcoming expenses. The reverse mortgage proceeds are tax-free and do not affect social security benefits. How does a reverse mortgage work?The borrower typically chooses from several payment options: 1) one lump sum in cash, 2) equal monthly payments for as long as both borrowers live in the home, or 3) equal monthly payments over a set period of time. Repayment of the loan is not required until both borrowers move, sell their home, or are deceased. At that time, the owner or the heirs of the owner may sell the home and pay off the lien with the proceeds. Or, they can keep the home and use other funds such as a traditional mortgage or life insurance proceeds to pay off the lien. Since no monthly payments are made, a reverse mortgage accrues interest charges, beginning when the first payment is made to the borrower. Usually a reverse mortgage is an Adjustable Rate Mortgage (ARM), with interest compounded monthly. Are you eligible?To be eligible for a reverse mortgage, the borrower(s) must be 62 or older, own the home outright or have a fairly low loan balance. A borrower continues to be responsible for property taxes, homeowners insurance, and upkeep of the home. Borrowers are also required to get reverse mortgage counseling before closing. This important step helps the borrower(s) learn more about the program. The counseling is free and can be done over the phone Using the equity a homeowner has built up over the years can help a borrower detour away from public assistance programs. Seniors who rely on public assistance need to research the impact reverse mortgage payouts may have on their benefits. What about your heirs?A borrower should discuss the reverse mortgage loan option with family or other heirs before closing on the loan. An heir will need to be prepared to pay off the loan balance with funds other than from the sale of the home if the heir would like to keep the home. Open communication, along with strong monthly financial planning, is necessary to keep family affairs running smoothly. One possible financial plan is for the family or heirs to obtain and maintain life insurance on the borrower, with proceeds designated for paying off the loan balance. A reverse mortgage is not for everyone...If you are running low on cash, take time to carefully analyze your required cash flow before obtaining a reverse mortgage. Because of the closing costs, a reverse mortgage may be a bad idea if you plan to move in a couple years, or if you have a temporary financial emergency that might be better resolved with a home equity loan. Carefully weigh the pros and cons of all cash flow options. Folks in early retirement should remember that the younger they are, the less money they are eligible to receive because of the life expectancy factor in the loan payment formula. |
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Elder Options of Texas
Elder
Options of Texas DISCLAIMER: Links to other websites or references to products, services or publications do not imply the endorsement or approval of such websites, products, services or publications by Elder Options of Texas. The determination of the need for senior care services and the choice of a facility is an extremely important decision. Please make your own independent investigation. |
