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Putting Your Retirement in Reverse
By Joni Traficante
Reverse mortgages are unique home equity loans designed exclusively for the needs of senior homeowners, age 62 and older, that enable them to convert part of their equity into tax-free cash or income without having to sell the home, give up their title ownership or take on any new monthly payments to a lender.
They can choose to receive their funds as a lump sum, monthly income, line of credit or any combination. This tax-free cash can be used for virtually any purpose. The loan only becomes repayable when the borrower sells the home, permanently moves out or passes away.
Reverse Mortgages have numerous built in consumer protection features so lenders can be confident about recommending them. The National Reverse Mortgage Lenders Association has developed a code of conduct and best practices to establish the highest standards for customer service and consumer protection for the industry. Borrowers are required to obtain a reverse mortgage counseling certificate from a HUD approved agency prior to moving forward with a loan application.
Once viewed with considerable skepticism, reverse mortgages are now recognized as a valuable new resource for the financial and estate planning needs of senior homeowners. Traditional retirement planning strategies have focused, almost exclusively, on building retirement savings through investments in a variety of financial assets and insurance products. For most seniors, it hasn’t been enough. Residential home equity, on the other hand, is unquestionably the largest asset most retirees have.
For some seniors it makes sense to replace or reduce the receipt of taxable income distributions from IRA, 401(K) or other tax-deferred accounts with tax-free distributions from a reverse mortgage. The effect would be to eliminate or reduce the income tax liability for the current year and to enable the investment account to continue the tax-deferred accumulation for future needs.
To be eligible you must be at least 62 years of age. The property must be the borrower’s primary residence. Additionally, they are required to keep the real estate taxes and homeowners insurance current, and they must keep the property well maintained.
These loan terms make it possible, and practical, to convert home equity to needed cash without selling, being forced to leave the home at some point, or taking on unwanted loan payments.
A reverse mortgage is a non-recourse loan. The lender can only derive repayment of the loan from the proceeds of the sale of the property with you or your heirs retaining all of the equity. Your heirs owe nothing even if the property loses its value.
If you or some one you love would like to learn more about how a reverse mortgage can help you, please call Joni Traficante of Direct Finance in Plymouth at 508-746-5626.
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