They say youth is wasted on the young. Simply because as we get older we become wiser in our lives especially with money decisions.
With youth comes ambition and a resourcefulness that alludes us as we get older. It's not very long after growing up that we are faced with the day-to-day challenges that jobs, kids and school, etc., bring. Our hopes in midlife are to live a long healthy adult life - to see our kids succeed with the lessons we have taught them.
But what happens when we get older and the cost of living keeps going up? For many these days, a Social Security check, a small retirement fund and/or savings will not fulfill the financial burden of retirement. Those age 62 and older can seek other kinds of financial help in the form of a reverse mortgage.
So what is a reverse mortgage? It's a special type of home loan that lets you convert a portion of the equity in your home into cash. FHA's version is dubbed the Home Equity Conversion Mortgage.
The equity that you built up over years of making mortgage payments can be paid to you. However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage.
You can use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.
But upon retirement what happens if you are equity rich but your monthly cash flow is low? The reverse mortgage could be an ideal solution for you. The reverse mortgage will give you an extra income for as long as you live in your house, and you will be able to take cash from your home without making any more payments.
The pros include no monthly payment due until the homeowner moves, passes away or sells the home. A good credit rating and income is not a part of the qualification process, which means it is easy to qualify for a reverse mortgage. The cons are high repayment costs. Too much income for low-income seniors will mean they are over the allowable limit for liquid assets. Reverse mortgages may not allow you to have access to all your equity, or even most of it.
You may be asking yourself what are the differences between a reverse mortgage and a home equity loan? With a second mortgage, or a home equity line of credit, borrowers must have adequate income to qualify for the loan, and they make monthly payments on the principal and interest. A reverse mortgage is different, because it pays you - there are no monthly principal and interest payments. Will we have an estate that we can leave to heirs? When the home is sold or no longer used as a primary residence, the cash, interest and other HECM finance charges must be repaid. All proceeds beyond the amount owed belong to your spouse or estate.
For more information, call an HECM counselor at 800-569-4287 for the name and location of a FREE HUD-approved housing counseling agency near you.
Chris Vigil is the broker/owner of Chris Vigil Real Estate in Whittier and a licensed real estate appraiser. He can be reached at 562-945-4422, chris@chrisvigil.net or www.chrisvigil.net
Source http://www.sgvtribune.com
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