Reverse mortgages have grown in popularity in recent years as more retirees seek to cash out their home equity and secure their lifestyle and financial freedom during their golden years.
A reverse mortgage is a special kind of HECM loan that allows American homeowners age 62 and older to borrow against the equity in their homes with no payment due until after they have passed away.
Certain requirements mandate third-party credit counseling previous to the loan, and the ability to demonstrate the financial ability to maintain home upkeep, pay property taxes and homeowner’s insurance. There are no credit or income requirements aside from this, but the property does have to remain a primary residence.
Due to the attractive nature of these loans, reverse mortgages have seen a boon in popularity in recent years for retirees. A new report that was published by the American College of Financial Services reflects that.
In a poll that covered over 1,000 participants, it was found that:
- 14% of qualifying older Americans are considering a reverse mortgage home loan.
- 44% have considered drawing upon their home’s equity during their retirement years.
- 25% said they were OK with using this equity as their regular source of income during retirement.
- Just over 40% of participants said the reason they wouldn’t need a reverse mortgage was due to the fact that they were already financially sufficient during retirement.
If you are nearing retirement, and you own your home, it’s never a bad idea to explore options with a reverse mortgage, should you realize that your funds may be inadequate for sustaining your quality of living post workforce.
The new rules on reverse mortgages allow retirees to borrow as much as 60% of their available equity without having to make any payments during their lifetime. Payout options include a lump sum, line of credit or monthly payments.
It’s always a good idea to fully consider this prospect before applying for such a loan, and to also make sure that you discuss it with a qualified financial advisor so you can explore all of your options and assure that you are making a well informed decision. After conducting your due diligence, you may deduce that such a loan is an advantageous retirement tool.