You do not have to be told that the biggest fear of aging Americans is running out of money before running out of life. Face it, we have lived productive and independent lives for longer than we can remember, and the thought of losing that autonomy is an anathema for any independent-minded senior contemplating the final stretch of their life’s course. Luckily, for those with a real property interest, going with a reverse mortgage might easily provide that critical financial buffer that they will need to live out their final years in a fashion and lifestyle from which they have become accustomed.
What is a Reverse Mortgage?
Simply stated, a reverse mortgage is a financial vehicle, in the form of a home loan that allows you the opportunity to exchange a share of the equity that you have built up into your home. As such, rather than making payments towards your mortgage every month, it is you or your loved one that receives the payments.
What sets this financial vehicle apart from a traditional home equity loan however, is that you do not need to repay this obligation until such time as you no longer use the home as your primary residence, or you fail to meet the contractual obligations of the original mortgage. For seniors who own their home free and clear, this provides a ready source of available funds to help fund their retirement.
Whether using the money to take the dream vacation that got you through thirty years of boring staff meetings, or you need to cover emergency medical expenses. The extra money that a reverse mortgage can provide is a life changer for seniors worried about running through their life savings.
How Much Can Your Borrow?
A number of factors go into the determination of how much homeowner can borrow with a reverse mortgage. In general, the following all play a role in arriving at the amount including:
- Current interest rate
- Age of the youngest borrower
- Value of the home
For the purpose of the loan, loaners base the amount on the lesser of the appraised value, or the FHA limit of $625,500. In cases where there is no eligible, non-borrowing spouse, the date of birth of the youngest borrower is used to determine the available amount of the loan. Regardless of the valuation process, a reverse mortgage is an ideal way to infuse money into an otherwise fixed income, and provides seniors with the flexibility that they need to live full lives without the added stress of wondering how they are going to pay for their crucial needs.
Leaving Your Heirs Something after You’re Gone
Once the home is no longer used as the primary residence, the money from the reverse mortgage loan needs to be repaid from the proceeds of any sale of the property, so since you base the loan off only a fraction of your equity, the remaining interest that you have in the home can transferred to your heirs.