Your home is probably the most expensive thing that you own. The equity in your home represents a valuable investment that represents security in your future. When you own your home, you have many options for tapping into the equity of your home to take care of your financial needs.
Many homeowners choose to refinance their mortgages when interest rates are low as a way to get funds to pay off other bills or to free up their monthly cash flow as a result of having lower mortgage payments. Another option that many homeowners take advantage of is the opportunity to get a home equity loan for the purpose of building a cash nest egg and paying off other debts.
Homeowners 62 and older have another excellent opportunity for benefiting from the equity of their home. This option is the reverse mortgage, and it is designed to allow homeowners who have reached retirement age to generate an income stream based on the equity they have in their homes.
Reverse Mortgages Explained
Since reverse mortgages have only recently starting catching on with homeowners, there is a great deal of confusing regarding what reverse mortgages really are. Only people who are 62 and over qualify for reverse mortgages. When you get a reverse mortgage on your home, the mortgagor actually pays money to you instead of the other way around.
The money you receive through your reverse mortgage becomes tax free income that you will receive for the rest of your life. You do not have to give up the title to your home or leave your home. When you take out a reverse mortgage on your home, you can elect to receive the proceeds in a lump sum if that works best for you. You can also set up the mortgage so that you receive monthly payments, or so that you can draw against the total amount as needed.
Whether or not you have a traditional mortgage on your home, once you reach 62 years of age you can take out a reverse mortgage. However, it is generally best to take out a reverse mortgage when you own your home free and clear, without a mortgage. You can only take out a reverse mortgage up to the amount of equity you currently have in your home, so the amount that you owe on your home would be deducted from the total you could get through a reverser mortgage.
Typically, senior citizens seek reverse mortgages as a means to help take care of the day-to-day expenses of life. You worked hard to pay for your home, so why not benefit from the equity in your home when you are living on a fixed retirement income.
Of course, a reverse mortgage is still a mortgage. Once you move out of your home, or the home is sold, or the homeowner passes away, the reverse mortgage has to be repaid. There is also risk associated with taking out a reverse mortgage. In the event that the proceeds from the sale of the home are not at least as much as what is owed on the mortgage, the homeowner or his or her heirs could be left with an additional balance to repay.