The Three Basics of Reverse Mortgages
1. Receive Tax Free Money from Your Home Equity:
A reverse mortgage is simply a financial tool to turn equity in your home into cash that can be used for many different purposes that will enhance and extend your retirement plan. If you currently have a mortgage, a reverse mortgage could eliminate your current monthly payment and also allow you to access any additional equity (over and above your mortgage balance) to create accessible cash which is not readily available while in the form of equity in your home.
You have spent many years putting your money into a special account called "home equity" and now with a reverse mortgage you can convert that equity to cash -- tax-free! Reverse mortgages are insured by the Federal Housing Administration (FHA) and called Home Equity Conversion Mortgages (HECM).
2. Get Rid of Monthly Payments and/or Establish a Line of Credit:
A HECM (Home Equity Conversion Mortgage) is the only mortgage that never requires a payment until you pass away or move out of your home. You are required to always pay taxes and insurance on your home, but whether you take a line of credit, monthly checks, or a lump sum, you will never be required to make a payment during your lifetime as long as you live in your home. However, should you choose a line of credit, you have the option of paying down the line should you wish to have less cash and increase your equity.
3. Never Owe More than What the Home is Worth:
When you permanently move out of your home, whether you sell it or pass away, neither your estate or your heirs are responsible to pay the deficit if the balance owed on your reverse mortgage exceeds the home value. However, should your heirs want to keep your home, they may purchase it for 95% of the current appraised value.