One of your most valuable assets in retirement may be equity in your home, but it can be hard to tap that resource. Of course you can downsize, selling your home and buying something less expensive. Or you can take out a home equity loan, but there are fees involved and you’ll have a brand new loan payment to make each month.
With around 10,000 baby boomers turning 65 each day, financial institutions are getting creative about giving the growing seniors market new tools for managing finances.1
One such tool is a reverse mortgage.
With a regular mortgage, you borrow money from a financial institution to buy a home. Each month, you make a payment until you pay off the loan and the house is yours.
In a reverse mortgage, you get a loan using the equity in your home, but the lender makes a payment to you—each month—for as long as your home remains your primary residence. As an added bonus, that money is usually tax-free.2
You may also have the option to take your money as a lump-sum payment or as a line of credit to be drawn upon as needed.
Generally, you don’t have to pay back the money for as long as you live in your home. When you die, sell your home or move out, you, your spouse or your estate must repay the loan with interest. Often that means selling the home to get money to repay the loan.
Use this handy , opens new window to see if it’s an option for you.
In a word—no. You can use the cash to fund medical expenses, make home repairs, take a vacation or just keep it on hand in case of an emergency.
The proceeds could also be used to purchase long-term care insurance or saved as a reserve against a future major medical expense. Your money, your choice.
The proceeds from a reverse mortgage generally will not impact your benefits from either Social Security or Medicare. However, if you have any questions about this, please be sure to contact these agencies.2
Reverse mortgages can be complicated and they’re not right for everyone. A few issues to discuss:
- Generally, you (and your spouse) will be able to remain in your home as long as you continue to pay your property taxes and keep the home insured and in good condition
- Closing costs will vary by lender and can be quite high
- Usually, your home will need to be sold as part of your estate to pay back—with interest—the money you’ve received in payments over time
- If the amount you owe is less than what the house sells for, the money left over goes to your estate
It is important to do your homework before taking out a reverse mortgage. A qualified financial advisor can help you decide if this is a good idea for you and can also help you select a lender and terms that are right for you.