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Moving Forward by Reaching Backwards: Reverse Mortgages

Moving Forward by Reaching Backwards: Reverse Mortgages

You’ve diligently paid off your mortgage, month by month, year after year. Now, decades later, you’re mortgage-free and house-rich.

But you have nothing else to live on. No savings, no inheritance and no other assets. How are you ever going to afford retirement?

Enter the reverse mortgage.

Over the years, your property has accrued significant value. That equity can now be converted into money in your pocket.

It sounds confusing, but it’s really just a practical way for you to borrow from your past investment to pay for your future.

Designed specifically for people 62 or over, the FHA Home Equity Conversion Mortgage (HECM) enables you, the homeowner, to withdraw a portion of your home’s equity in three ways:

  1. A lump sum,
  2. A flexible line of credit, or
  3. Fixed monthly payments for a set time or for as long as you live in the home.

Nothing is paid back until your death—unless you sell your house first. And if the balance due on the loan exceeds the value of the home at time of death, FHA insurance will pay the lender the difference.

To qualify, your home must be your primary residence, you must complete formal HUD approved counseling, and your application must undergo underwriting guidelines before being approved. The maximum loan amount allowed is $625,500.

So what’s the difference between a reverse mortgage and a home equity line of credit (HELOC)?

A HELOC is a line of credit that uses your house as collateral. But it differs from a reverse mortgage in one important way: with an equity line, you must make monthly interest and/or principal payments whenever you owe a balance. And a HELOC must be paid in full when it expires. But with a reverse mortgage, no payment (other than property taxes and insurance) is ever made by you since the loan balance is only paid after your death from the sale of your home.

In the end, a reverse mortgage may work for seniors with limited choices. But it may not be ideal for you. The best way to know is to meet with an expert.

As a certified financial planner, I can work with you to create a personal retirement plan based on your specific needs and dreams. I charge no fees for putting together a financial plan and can help you decide: how best to pay off credit card debt, how much money to keep in savings, where to invest your money based on your risk tolerance, and whether or not a reverse mortgage makes sense for you.

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