Debra Pauley
Associate Broker
Realty Executives Arizona Territory
A reverse mortgage can be used to turn a portion of the equity in your home into cash that can be used for many different purposes that may enhance and extend your retirement. If you currently have a mortgage, a reverse mortgage could eliminate your mortgage payment (taxes and insurance must still be paid, and the home maintained), 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 home equity. You have spent many years putting your money into your home equity, and now with a reverse mortgage, you may be able to convert some of that equity into tax-free cash.*
*This information does not constitute tax advice. Please consult a tax advisor regarding your specific situation.
Pros
- You get money based on the value of your home and you stop making your mortgage payment. You can use the money for whatever you want.
- You maintain ownership of your property.
- It is a “non-recourse” loan. This means the debt cannot exceed the market value of the property. Your heirs can keep the house and settle/refinance the loan, or sell the house to settle the loan and keep the remaining money. If the house isn’t worth enough to cover the loan no debt will pass to them. The Federal Housing Administration covers it.
- If you’ve not paid off your mortgage the interest on the reverse mortgage loan compounds with the original interest and it can quickly balloon out of control.
- Unlike a traditional home equity loan, you are not making payments on the principle and interest. So although your heirs are not on the hook for the loan, compound interest, fees, and fluctuations in the market can increase the likelihood they will be unable to retain the home when you are gone.