Using a Reverse Mortgage to Fund Retirement

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Many retirees who own their homes outright are getting reverse mortgages. In essence, a reverse mortgage allows a homeowner to take a loan out against their home equity, however, as long as you don’t sell your home and are still inhabiting it, you don’t need to make any loan repayments. Many retirees are choosing to use the loan equity from their homes to fund their retirement dreams.

Here’s what you need to know prior to taking out a reverse mortgage on your home to fund your retirement:

If the homeowner opts to reverse mortgage their property, this loan must be the sole debt against the property.

Other loans against the home must be paid off, unless prior lienholders agrees their lien will be subordinate (junior) to this primary mortgage broker.

Typically, the more expensive the property, the higher the loan amount.  

Generally, the older the home, the larger the loan amount compared to younger homeowners.

Mortgage lenders can demand reverse mortgage loan repayment if the homeowner:

  1. Takes out any additional loans against the house.
  2. Declares bankruptcy or commits fraud.
  3. Adds a new owner to the home title.
  4. Abandons the property.
  5. Fails to pay property taxes.
  6. Alters the property zoning.
  7. Sublets any area of the property.
  8. Doesn’t continue to insure the property.
  9. Fails to maintain the property and the home becomes condemned.

Here’s how reverse mortgages basically work:

  • Under the terms of a reverse mortgage, the lender (or mortgage broker) facilitates payments, which are paid to the homeowner.
  • Reverse mortgage payments are calculated based on a percentage amount of the value of the home.
  • If the homeowner decides to moves out of the home, he or she may sell the property to pay off the reverse mortgage loan.
  • If the homeowner dies while still inhabiting the home, his or her existing family can sell the home to pay off the loan or opt to refinance the existing loan to keep the home in the family.
  • In the event of death or sale, the lender may also be authorized to sell the property in order to pay off the balance of the reverse mortgage loan.