What You Need to Know About Reverse Mortgages
As we are at that stage of life of caring for our parents as they age, we’re investigating all options for them to stay in their home, including a reverse mortgage. We’re sharing a bit of what we’ve learned, but please keep in mind that we’re simply sharing a few bullet points and highlights. It might be a surprise to you, but none of us here at Mini Safe Storage in San Leandro, CA are experts at estate planning. Please consult a financial planner for more information and to determine if a reverse mortgage fits your situation.
There has been a lot of information about reverse mortgages circulating. According to financial planners, this may be a good option to supplement your retirement or protect yourself during economic downturns. Simply put, a reverse mortgage is a loan against the equity of your home that is repaid through the sale of your home. The laws and regulations have changed over the last few years, addressing the cons of this option for many.
Misconceptions about a reverse mortgage
- You do not lose ownership of your home. The deed remains in your name.
- You cannot be “kicked out” of your home. You must live in the home as a primary resident for more than half of each year, so six months + one day.
- Your heirs are not responsible to pay the difference in the value of your home and its value when it is sold if the home loses value. Mortgage insurance pays the difference if the home loses value.
Basic information about a reverse mortgage
- You must own your home in full to take out a reverse mortgage.
- You must be at least 62 years of age to take out a reverse mortgage.
- Your home must be FHA approved to be eligible for a reverse mortgage.
- You must continue to pay homeowner’s insurance and property tax.
- You (or your heirs if you are deceased) will receive any excess equity upon sale of the home.
- Total equity that you can take out depends on the value of your home and age
- There are four ways you can receive money
- Lump sum (large sum taken at one time)
- Specific term (e.g. a five-year period)
- Tenure payment (stream of income taken monthly throughout your life)
- As needed (taking out when you need to, such as during a down market when your other investments are not performing well)
While this tool may not be the perfect fit for all, talking to a certified financial planner can help you make the best decisions to match your individual needs. And, if you want to share an idea that you’ve found with us, stop by at let us know at Mini Safe Storage in San Leandro.