Q: My wife and I have just retired. Our home is paid off but we are concerned about having enough money to enjoy our retirement. Is there anything we can do to get the equity out of our home to live on now?
A: For adults over the age of 62 who own their home and plan to continue living in it there is a form of mortgage – called a reverse mortgage – that could be the solution to your need to have money today. A traditional mortgage is one in which you borrow the money to purchase a home and pay it back, with interest, on a monthly basis.
This is the type of loan most homebuyers use to make their purchase. Equity builds up over time and eventually you pay off the loan either when you sell the property or at the end of the term of the loan. With a reverse mortgage you can turn the value of your home into cash without having to move and with no monthly payments to make. You do not have to pay back a reverse mortgage so long as you continue to live there. Instead of turning your income into equity, you reverse the process and turn your equity into income. There are a variety of options on how to take the income from the mortgage. You could arrange for monthly cash advances, a single lump payment, a credit line account that you draw on as needed or any combination of these. Even better, there are no restrictions on how you can spend the money. Travel, medical expenses, remodeling or just adding a cushion to your financial situation are all legitimate reasons people have elected to take a reverse mortgage. So long as all owners of the property are at least 62 years old and it is a single-family home (detached, town home or condominium) or a two- to four-unit building you are likely to be eligible for a reverse mortgage. Unlike a traditional loan where you build equity, with a reverse mortgage you build debt as you withdraw the home’s equity – but you postpone having to repay that debt typically until you leave the home by moving or through death. An exception to this would occur if the value of your home rose considerably over the time you had the reverse mortgage. In that case, you could actually have some equity available even after you have taken what you could on a reverse mortgage. You keep any difference between what you owe the lender and the value of the home at the time the reverse mortgage is paid off.
As with any important financial decision it is best to consult with a professional – a bank, mortgage broker or a REALTOR® – who could help you decide if a reverse mortgage is appropriate.
For more information on reverse mortgages, please visit www.secureseniorliving.org