Seniors that own their home can tap into their home’s equity and create a cash flow. It’s made possible with the reverse annuity mortgage, otherwise known as the reverse mortgage. The mortgage product provides seniors with monthly payments or a lump sum payment (they choose). Rather than seniors making payments, the bank makes payments to them. The loan does accrue interest like any other loan. But seniors don’t have to pay the loan back until they no longer own the home or they pass away.
This loan does have several benefits that seniors can enjoy. Keep reading to see if this loan type is right for you.
A Great Income Supplement
Seniors often have to rely on social security or pension income and sometimes it’s not enough. Seniors that face rising medical costs or just can’t afford the cost of living the life they want often look for ways to supplement their income. The reverse annuity mortgage does just that. Seniors can choose to receive the income in one of the following ways:
- Lump sum – Seniors can receive all of the money at once and invest it as they see fit.
- Line of credit – The bank can put the money in an account where the senior can draw on it as necessary.
- Monthly payments – Seniors can also opt to receive monthly payments on a regular basis.
No matter the payment choice the senior chooses, the money can supplement their retirement income, allowing them to use the money while they are alive.
Allows Seniors to Age in Place
Today, many seniors are opting to ‘age in place’, otherwise known as staying at home rather than moving to a retirement or nursing home. This can often require a higher cost of living because the senior must fend for himself, so to speak when it comes to daily living expenses. The reverse mortgage can give the senior the cash necessary to meet those daily living expenses.
Keep in mind, seniors must be able to cover the cost of taxes and insurance on the home as well as the cost to maintain the home.
The Reverse Annuity Mortgage Doesn’t Require Repayment
Seniors don’t have to worry about paying back the mortgage until they do one of two things:
- Pass away and leave the home to someone else
- Move away from the home
If the senior does either of the above, the loan becomes due and payable. It’s doesn’t occur immediately, especially in the case of your death. The bank will give your loved ones time to sort things out and sell the home so that they have the money to pay off the loan. The burden is not on you while you are alive, though. You just get the benefit of using the money you worked so hard to invest while you were in your working years.
You Won’t be Upside Down
The Reverse Annuity Mortgage provides protection against decreasing home values. If your home loses value and you owe more than the home is worth, the bank will not require payment of the full amount. You or those that inherit your home will not owe more on the loan than the home is worth at the time of the sale/repayment of the loan.
You Won’t Owe Taxes on the Income
Luckily, the IRS doesn’t look at the payments from a Reverse Annuity Mortgage as income. Instead, they consider it loan proceeds. That’s good news for you while you are alive and using the benefit. The somewhat bad news, though, is that you cannot write off the interest accrued on the loan until it’s actually paid. Every day the interest accrues, but unless you make a payment or sell the home and pay the loan off, you cannot write off the interest.
The Reverse Annuity Mortgage gives you plenty of benefits to help you stay in your home and have the cash flow necessary during your senior years. The amount you receive depends on your age or the age of your spouse (the younger age prevails). The older you are, the more money you will receive as you won’t need to stretch the payments out as long as a younger person. If you are strapped for cash, consider your options for this loan to help you live your golden years in peace.Click to See the Latest Mortgage Rates»