4 Reasons Why You Should Consider Reverse Mortgages
Also known as a home equity conversion mortgage, or HECM, a reverse mortgage is a type of home equity loan designed specifically for individuals over the age of 62. With a reverse mortgage, a lender makes payments to the homeowner in exchange for equity in the home. Here’s why you should consider reverse mortgages:
Put Money In Your Pocket
The primary benefit of a reverse mortgage is that it provides you with money to help you cover your retirement expenses without giving up the title to your home or sell it. With a reverse mortgage, you can continue to live in your home and even use the proceeds of your loan to help cover your monthly mortgage payments.
According to Reverse Mortgage Daily, “More aging Americans today may find they don’t have the proper financial security that they had hoped for, either due to not saving enough or carrying significant debt into what should be their retirement years. Some may also have less-than-expected investable assets or a lower-than-expected income.”
Reverse mortgage income is often tax-free, too, which is another big plus. And whereas some retirement-funding solutions require you to sell and downsize your home or even to move to a less costly region, reverse mortgages let you stay in your home while receiving payments.
You can pay it back – or not.
The loans are paid off when the homeowner either moves to another residence or dies. Reverse mortgages are nonrecourse loans. This means that even if the home value drops, the homeowner is not responsible for the difference. If there is any equity left after the loan is settled it goes to the homeowner or estate.
Convert to Roth IRA
Homeowners can use their home’s equity to convert their 401(k) and traditional IRA plans into a Roth IRA.
According to Kiplinger, “When converting to a Roth, the distributions from a 401(k) or traditional IRA become taxable, which must be paid at the time of conversion. The home equity can be used to pay the tax, and from that point forward, any distributions from the Roth are tax-free. In addition, income from a Roth IRA is not included in the Social Security tax calculation. The reverse mortgage LOC would be the preferred option because it can be used only as needed and replenished with any excess cash flow.”