With the amount of equity floating around in the U.S., reverse mortgages could be a good a good financial decision in the right circumstance, explains a recent article onThe Street.
There is $12.5 trillion in home equity in America and about $14 trillion in retirement assets, according to the article. Reverse mortgages could be used by homeowners 62 and older to help supplement Social Security and other existing income sources like medical expenses, long vacations or even purchase a new home.
A perk about the product that the public was often confused about in the past is that homeowners will never relinquish title to their homes. “The reverse mortgage enables seniors with insufficient income to tap their home equity without selling their domicile,” the article says. “Moreover, the income can make it possible for a retiree to deal taking Social Security payments in favor of larger payments down the road.”
There are some facts that homeowners need to know before taking out a reverse mortgage though. A small, but important detail that often is overlooked is the fact that the amount withdrawn during the initial year of taking out a reverse mortgage determines the mortgage insurance premium when the loan is closes.
The fees used to be extremely high, in some cases, but now, the Department of Housing and Urban Development (HUD) limits origination feed to just 2% of the first 200,000 of the maximum claim amount plus 1% of additional home value, but not exceeding at total of $6,000. according to the article.
Reverse mortgages can be extremely complicated for those homeowners taking a look for the first time, but with the proper education, they can see how the product could benefit them to support their overall retirement plan.
Read the full article on The Street.
Written by Alana Stramowski