How will reverse mortgage affect Baby Boomers?

Posting this article by Jennifer Lohan on her behalf for sharing.

Baby boomers are trying hard not to get glued to their medical scooters, walkers, wheelchairs and lift chairs to spend the rest of their lives. So, they are turning to reverse mortgage so that they can stay on in their homes. Reverse mortgage is a type of home loan that will enable you to tap the equity that is trapped in your home. So, when you take out a reverse mortgage, you are freeing up the equity in your property.


Reports furnished by the American Housing Survey (AHS) state that approximately 25 million homeowners are without mortgage debt and about 12.5 million of them are seniors and 62 years or more (as of June 2009). For majority of the senior homeowners, equity is their biggest asset.

When do you qualify for a reverse mortgage?

You are eligible to take out a reverse mortgage under the following circumstances –

• You have to be 62 years or older.
• The house in which you are residing has to be your primary residence
• You needn’t have a good credit. 
• There are no income requirements

 How does a conventional mortgage differ from reverse mortgage?

In case of a conventional mortgage, you have to make payments to the lender each month. You should have a steady flow of income that can support your monthly mortgage payments. On the contrary, in reverse mortgage, you don’t have to make payments to the mortgage lender till the time you are residing in the house or till the time you live.

Are reverse mortgage proceeds taxable?

The proceeds of reverse mortgage are tax free as it is a loan advance and isn’t treated as income. You can receive the proceeds in the following manner –

•  As lump sum 
• Line of credit 
• Monthly payments that are fixed 
• By combining 2 or more of the above methods

 The cash you get from reverse mortgage can be used for any expense you desire and usually includes the following –

•  Your daily expenses 
• Medical bills 
• Prescription drugs 
• Traveling 
• Funding education of a family member 
• Paying off existing debts 
• Home improvement and repair work 
• Long term care insurance 
• Estate tax 
• Funding financial plans etc

 

What are the benefits of taking out a reverse mortgage?

 

• You won’t lose your home -Unlike a conventional mortgage where you may have to lose your home in foreclosure due to non-payment, in case of reverse mortgage, you don’t have that fear.

•  Proceeds are tax free- The amount you get from reverse mortgage doesn’t attract any tax.

•  You retain homeownership- Reverse mortgage allows you to retain homeownership till the end.

•  Funds can be used according to your wish- As mentioned above; you can use the money for fulfilling any financial obligation.

•  No income requirements or credit checks

•   It is easier to qualify for the reverse mortgage loan

•  It offers flexible payment options as you can receive the money according to your choice (lump sum, line of credit etc)

 With so many benefits offered by reverse mortgage, Baby Boomers are expected to be equipped financially so that their golden years are not glued to hospital beds