The option of tapping into home equity in the form of a reverse mortgage has long been an option for older adults who wish to age in place. And recently, there have been many changes to the program that are giving the Home Equity Conversion Mortgage (HECM) program a better name, explains a recent article from The Huffington Post.
There are some potential dangers for Baby Boomers as they move into retirement, the article explains. Being the sandwich generation, they could be dealing with their aging parents as well as supporting their own children who may have massive student loans and no job, but a reverse mortgage may be able to help retired boomers.
Once a homeowner finds out if they are eligible for a reverse mortgage, there are certain aspects of the product that the borrower may not be aware of that could potentially help them out in their retirement.
The method in which the borrower receives the funds is important to how he or she wants to use the funds. Knowing the difference between a lump sum, a term payment or a credit line can make a huge difference for the borrower.
Another perk of reverse mortgages that some borrowers may not be aware of right away is that the payments that come from the reverse mortgage are received income tax free. A strategy that can be used then is if the borrower chooses the line of credit option and holds out on tapping into it, the amount available to he or she will increase each year.
Some other ways that reverse mortgages can be used to help retirees out in their later years is to pay off an existing mortgage and eliminate mortgage payments, use the funds to pay for long term care or a long term care policy or assist children or parents with financial needs.
“It cannot be used to purchase an annuity or buy stock,” the article writes.“[The] key to the program is that payments are received tax free, the loan is unsecured and the heirs are only responsible to pay back a maximum of 95% of the home’s value regardless of how much was taken out. It’s a win-win.”
Read the full article in The Huffington Post
Written by Alana Stramowski