Reverse mortgage loans can give the freedom to elderly homeowners, to live life, the way they want. They can leverage their home equity and borrow funds, as a lump sum, line-of-credit, or monthly payments, while enjoying the right to own and occupy their homes.
There are many smart ways to put reverse mortgage loans to use. Nevertheless, an option that might seem smart for someone may or may not be good for you. It all depends on your financial situation.
Here are a few things that will tell you how exactly you should use a reverse mortgage:
To pay off your debts and large expenses
This is one of the best ways to use a SFAM mortgage insurance. Not only will you be free of your debts, you will also be free of all the worries and tensions associated with paying off these debts. So, you can safely use the funds that you get through a reverse mortgage to pay off your existing mortgage, credit card bills, medical bills, student loan or car loan. This way you can save the portion of your current income, which you would otherwise use to make your monthly payments.
Nevertheless, if you are totally drowned in debts and if there is nothing that a reverse mortgage can do about your situation, it could be a better option to sell your house rather than taking out a reverse mortgage on it.
To finance your living expenses
It can often become difficult to maintain your lifestyle with the amount that you get via social security or retirement pension. This is why many senior homeowners take out a reverse mortgage. Not only will it support their lifestyle, it will also supplement their income, for as long as they live in their house.
They can use the funds that they get via reverse mortgage, to pay for their home repairs, at-home care, medical equipment, medical services, dental bills and more. If you have already been paying for these things through your current income, you can use up the extra funds to buy new clothes, make frequent visits to the beauty salon or even take a vacation to some exotic place.
In case you are not in a condition to pay up your property taxes, home insurance and maintenance/repair charges, it is better not to go for a reverse mortgage. Instead, you can sell your home and buy a smaller sized (less-expensive) home and use up the extra money to improve your financial situation. Alternatively you could even go for a regular equity loan at a lower rate of interest.
To plan your finances
Reverse mortgage loan can be a very valuable tool when it comes to Financial planning. It can help you delay your social security benefits, preserve your retirement assets for later use or set up a line of credit to be used later, when required.
Drawing income from your HECM (Home Equity Conversion Mortgage) is not taxable. This is not even considered as an income as it is a loan advance. So, by taking out a reverse mortgage you can actually avoid paying income tax on your social security benefits.
With a reverse mortgage by your side, you are in no hurry to sell your equities and mutual funds when the market is down. The incoming funds make it easier for you to protect your portfolio and wait until the market picks up again.
To gift money to your children
Although this is not something most senior homeowners do, you can do so, if you have saved enough to make you sail through the rest of your life without any hassles. By gifting money to your children, you can help them be free of their student loan, buy a house by making a down payment or even start their dream business that they have been postponing owing to lack of funds.
Nevertheless, if this option is going to put you at a risk of running out of your money during your lifetime, it is better not to even tell your children that you are taking out a reverse mortgage.
To upsize or downsize your home
While you can tap into your home equity by going for a reverse mortgage, you can also buy a house with the money that you get out of a reverse mortgage. You can sell your current home and buy a bigger one. You can even downsize your home and use the extra money for furnishing and making home repairs. In case you have taken out a reverse mortgage along with your spouse and you are about to take a divorce, you both can use the money to purchase two small homes to fit your separate needs.
To purchase annuity
Annuity is a type of insurance, wherein you pay a substantial premium upfront and enjoy monthly payments for the rest of your life. However, using a reverse mortgage to purchase an annuity is quite a risky venture. You will have to weigh your pros and cons before using up your reverse mortgage to invest in such financial products.
Taking out a Reverse mortgage seems feasible only in certain situations:
There is no point in taking out a reverse mortgage, if you are planning to leave your house to your heirs or if things have turned out in such a way that you have to move into an assisted living facility or a nursing home. This will only make your loan due for payment and you may even have to sell your house in order to pay it back.
There are many lenders who may be willing to offer you a reverse mortgage. Some might even contact you directly by purchasing your details via reverse mortgage leads. However, it is always better to do your homework and find out how a reverse mortgage will benefit your situation, before saying "Yes" to any such lender. After all it is always better to be safer than sorry.
