Using Your Home Equity For a Reverse Mortgage in Retirement

Before reaching retirement age, plan how to utilize your home’s equity and determine which type of mortgage you may get on your house. US Business Finance Corp, an alternative financing company, helps homeowners review their options and secure residential mortgages that best suites the homeowners income and lifestyle.

Since your home, just like your investments, builds your retirement nest egg, your strategy should include how much extra you wish to pay on the balance during the period of the mortgage. As the baby boomer generation rolls into retirement age, the prospect of living on social security and retirement income has caused many to consider other sources of retirement funds. The biggest asset many find to leverage is their home. There are several methods to consider in order to access your home’s equity, the guide below helps you see how each real estate strategy may apply to your retirement situation.

Real estate strategies include:

• Paying for a smaller home with the sold home’s equity and possibly provide extra cash;
• Getting a reverse mortgage; and
• Moving to a region where cost of living is less.

A variation of these options is if you downsize, pay for your new home with the proceeds of your old home and then get a reverse mortgage. With both strategies, downsizing and reverse mortgage, building up equity in the house (and keeping up repairs) positions you for the best use of your asset. For figuring how much your home will be worth at retirement age, figure a 5.5% increase in value (barring situations where your neighborhood goes downhill). With the ups and downs in the housing industry, the home value increase is usually in the 5.5% to 6% range.

Consider a reverse mortgage. A reverse mortgage is a loan that allows homeowners to convert a portion of the equity in their home into cash. Unlike a traditional fixed or adjustable rate mortgage, a reverse mortgage has no monthly payments. Part of the cash goes to the owner and the rest goes to the lender as a prepayment of the interest. The cash the homeowner receives is usually around 60%. As long as one of the borrowers lives in the home, the home can not be sold by the lender or foreclosed. For HUD’s FHA loans, you must be 62 years of age or older and fully or mostly own a single-family residential house, an apartment, condominium or townhouse. Some manufactured homes may also meet the lenders standards.

The benefit for retirees is that the home’s equity largely determines home loan eligibility, not income. The homeowner does not have to move or make mortgage or rent payments. For an FHA backed loan, you must attend a counseling session to determine if this is the correct loan for your retirement situation. A benefit for retirees is that they can receive their cash as a lump sum or in monthly payments. Though these payments may affect your Supplemental Security Income and Medicaid payments, they are not taxable. The mortgages do not establish an escrow account for insurance and taxes – those remain the responsibility of the homeowner.

US Business Finance Corp helps homeowners who are downsizing or moving to increase the buying power of their income.  Our team of professionals will make sure that they grasp all your real estate needs and concerns before offering the financing options that best suit your needs. Contact our mortgage team to review your real estate financing solutions.

Filed under: Alternative Capital, Banking Industry, Money Matters - Personal, Real Estate