Reverse mortgages have grown in popularity over the past five or so years. And, once you get over the worry that extracting some of the equity built up in your home is a bad thing, you’ll find it easy to see why. The average US home-owner aged 65-74 has $150,000 equity in their home, making it the perfect financial retirement solution, for many older home-owners.
In plain English, a reverse mortgage is a type of Home Equity Conversion Mortgage (HECM) that allows home-owners aged 62 or over, to borrow against their own home. There’s no payment until the home-owner dies and there are a variety of options as to how you receive the monies. They are:
- As a lump sum.
- In regular payments.
- Through a line of credit, with no interest required on unused monies.
There are a few details home-owners considering a reverse mortgage need to fulfil. Demonstrating the financial ability to maintain the property and also pay taxes and home-owners insurance, among them. But, it’s a pretty straightforward and useful option, for many home-owners.
Older is Better
Many people consider that reverse mortgages give you more rewards, if you wait longer to take them out. And there is some sense to that.
The older a home-owner is, the more they’re able to withdraw from the value of their home. That means you could wait a few years and take out a good-sized lump-sum, to use in a special way for family or for a personal treat.
Waiting until you’re older to take out a reverse mortgage also means there’s less time for interest payments to build up. This should result in a lower charge once the property is sold and the remaining money is split between inheritors.
But, there is also a growing pool of reverse mortgage experts and financial advisers, suggesting an alternative option.
Enjoy Reverse Mortgage Benefits as Soon as Possible
We’re not suggesting that everyone should start plundering their home and using it to fund a dream holiday, car or renovation. Although, there are plenty of people who choose to do that and never regret it.
What is becoming increasingly popular is a Standby-Reverse Mortgage, or SRM. This is where home-owners take out the line of credit through a reverse mortgage as soon as they hit 62, but don’t use it immediately.
Timing wise, right now is a great time to do this as lower interest rates translate into a bigger line of credit. Then, as rates rise and the home-owner grows older, the line of credit grows and the unused portion of credit could turn into an even larger sum to tap into later on.
It may sound a little complicated, but, it’s a great way to make your home work harder for you to enjoy. After all, you spend years working hard to pay-off a mortgage. So, why not ask more of your home and enjoy bigger benefits later in life?