Starting Points & Strategies
What, Who, How, Why
What is a Reverse Mortgage?
A loan secured against the value of a homeowner’s principal residence.
Who qualifies for a Reverse Mortgage?
Homeowners age 55 or older who live in their primary residence and has a low mortgage balance or is mortgage-free. A homeowner can apply for a Reverse Mortgage with the help of a mortgage broker, as well as a lawyer who can review the terms of the Reverse Mortgage and clarify how it will affect their heirs and estate planning.
How does a homeowner qualify for a Reverse Mortgage?
There is no need to qualify by debt service ratios or income level, additionally, Reverse Mortgages will not impact pension payments. Furthermore, the funds withdrawn are tax-free and the homeowner maintains ownership of the home.
Up to 55% of the home equity can be accessed.
No monthly payments are required; however, optional interest payments can be made.
Why would a homeowner want a Reverse Mortgage?
These are the different Strategies that can be used with a Reverse Mortgage:
- First time home buyer – gift from grandparents/parents – help adult kids to purchase home without touching savings of grandparents/parents
- Living inheritance, tuition gifts to family members
- Debt consolidation
- Monthly income
- Renovations
- Divorce/separation – use equity to buy second home for other spouse so can wait for good time to sell, no rush to sell immediately
- Down-sizing – use equity for downpayment to avoid having to use “condition to sale of home”. Allows for time to transition into a new home.
- Proactive down-sizing – Purchase down-size property now, rent out until ready to downsize. Use rental income for vacations, etc.
- Purchase investment property, vacation home, able to purchase a “unique property, rural property, remote location” more easily
**Using Reverse Mortgage funds for investing means interest is tax-deductible
Written by Kim Franz