You spent 15 to 30 years paying off your mortgage, slowly buying a little bit more ownership from the bank, until you finally paid off the loan. You own your house outright.
Fast forward to retirement, and you're trying to get your funds in order. You're not sure you have enough to retire, even though you'd like to. One of your friends suggests a reverse mortgage. What is this and how does it work? Below are a few key facts:
- The reverse mortgage, as the name implies, pays out to you every month.
- The amount you get depends on how much equity you have in your home. It's best in many ways that you own the house outright, but people can use these even if they're still making payments in some cases.
- Typically, you must be at least 62 years old to get a reverse mortgage.
- You do not have to repay the reverse mortgage loan. However, it will be part of your estate when you pass away. This can work well. For instance, perhaps you have a life insurance policy. Your heirs could use the funds from this policy to pay off the debt.
- The exceptions to the above are if you move out of the home permanently or if you sell it. Then you'll need to repay the loan. If your home's value is climbing, you may be able to pay it off when you sell the house and make a profit.
For a long time, people thought of reverse mortgages as a last resort. However, people are now learning that proper planning can make them effective and powerful tools for retirement. Make sure you know how they work and all of the legal steps you'll need to take if you're considering one.
Source: Bankrate, "Reverse mortgage: What is it and how does it work?," Doug Whiteman, accessed March 22, 2018