In the popular imagination, many people think of senior citizens as being freed from the constraints of work and income. However, increasingly few older people have the luxury of an easy retirement.
The number of older Americans who have no retirement savings whatsoever is now hovering at close to 50%. While many older Americans are “asset rich” and own homes that have shot up in value, they have very little cash to their name.
This is why a reverse mortgage is often a popular option to unlock that equity and free up some cash. How does a reverse mortgage work in reality? Read on to find out.
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What Is a Reverse Mortgage?
So, what is a reverse mortgage? Essentially, it is a backward version of a mortgage loan that allows you to unlock any home equity you have built up.
It allows you to borrow against the value of your home, based on the equity you have already built.
It allows you to directly convert that equity into cash via a lump sum or series of payments. What’s more, you do not need to make any additional loan payments during your lifetime or sell your home to access the cash.
How Does a Reverse Mortgage Work?
So, how do reverse mortgages work? The first thing to know is that they can be complicated. You must be at least 62 years old to access one, and there are limits on the amount of equity you can unlock.
Even if you have fully paid off your mortgage and own your home outright, it is unlikely that you will be able to access the full value of your home.
The money you do receive is always tax-free, and you do not have to pay it back at all during your lifetime. Instead, your spouse or family can pay it off by selling your home after you pass.
You can also pay off the balance during your lifetime, if and when you sell your home. To find out exactly how much you can get and what your payments might look like, you can use this free reverse mortgage calculator.
Am I Eligible for a Reverse Mortgage?
A reverse mortgage is not available to everyone. Reverse mortgage requirements are federally regulated and very strict, so you must make sure you fit the bill before applying.
First off, you must be at least 62 years of age. You must also own your home outright or have paid off a significant portion of your mortgage already.
The property in question must be the one you actually live in, and you’ll need to demonstrate that you can continue paying your property taxes and homeowner dues throughout your life.
If you fit these requirements, you will likely be able to apply for a reverse mortgage.
Unlock the Potential of Your Real Estate Assets
For more of us, our home is the most important asset we will ever own. It is a crucial store of wealth, one that we should all make the most of.
This is why knowing the answer to the question “how does a reverse mortgage work?” is so important, even if you are decades away from retirement.
For more essential information on how to unlock the full potential of your real estate assets, we have got you covered. Make sure to consult our expert Real Estate section for actionable insights that you can trust.