Many people haven’t saved enough to cover retirement expenses, but many have one major asset: a home. And for older homeowners looking for a source of long-term income to pay for these expenses, a reverse mortgage might be a good option, according to Investopedia.
The online resource for investment, finance and market analysis suggests six steps to retiring with a reverse mortgage.
Before looking into the loan, which converts home equity into cash, homeowners must first make sure they’re eligible.
Additionally, if you have or are planning to apply for Medicaid or Supplemental Security Income, note that any funds you retain count as an asset, which could make you ineligible for these benefits.
“It is generally recommended that you use any reverse mortgage proceeds immediately to avoid any potential problems,” Investopedia writes.
Next, compare loan types and shop around. Home equity conversion mortgages (HECMs), the most common type of reverse mortgage, are issued by private banks and insured by the Federal Housing Administration (FHA).
Non-HECM loans are also available from various lending institutions, but are not federally backed and can be considerably more expensive than HECMs.
Shop around and compare the terms presented by various lenders, Investopedia suggests.
“Keep in mind that you don’t have to purchase any other products or services to get a reverse mortgage (with the exception of property insurance). Be wary of anyone who tries to pressure you into buying other financial products, such as annuities or long-term care insurance.”
Finally, choose a payment option for the loan and review the loan’s terms before signing. Reverse mortgages can be taken out as a lump sum, monthly payment, a line of credit or a combination of these options.
“You need to make sure you fully understand the terms and are confident about the lender,” Investopedia writes.
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Written by Emily Study