Reverse Mortgages Access Home Equity and Delay Repayment

For people age 62 or older, their home equity could provide funds for property taxes, medical bills, or home improvements. As an older person, you might want to tap into your home’s value, but the prospect of immediately making payments on a home-equity loan discourages you. A reverse mortgage, however, could inject a large lump sum of cash into your budget without requiring immediate repayment.

This type of home loan is available if you own a home outright or only owe a small amount. After completing the new loan, you will receive cash from the lender. The loan will not need to be repaid until you die, sell the property, or cease using it as a primary residence. Income taxes generally do not apply to the money. Also, the distribution should not influence your Social Security or Medicare benefits.

Types of Loans

The first type available is known as a single-purpose loan. Its terms will restrict what you can do with the loan proceeds, such as pay property taxes or repair a home. If your income is low or average, you might qualify for a single-purpose loan. The next option is called proprietary, and you would get this loan from a private lender. Generally, you will need to have a higher-value home to qualify.The U.S. Department of Housing and Urban Development provides backing for your third option, the Home Equity Conversion Mortgage (HECM). The federal government insures these loans, and the proceeds may be used for any purpose. Factors that influence your ability to qualify for a loan include your age, loan type, and home value.

Expenses and Repayment

The responsibility of paying for homeowners’ insurance, utilities, and property taxes remains on your plate. You should factor these ongoing expenses into your budget for the duration of the loan. Loan origination fees also apply when you get a loan. Most of these loans, except the HECM, depend on variable interest rates. A lender should provide you with a document itemizing the total annual cost of the mortgage. Resources from a life insurance settlement company can provide further information about ways to ease financial challenges during retirement.