Reverse mortgages are not as complicated as some seniors believe. Just like any loan, you need to know the facts and understand the processes to know if this type of loan will best suit your needs. Reverse mortgages can convert part of the equity in your home into cash without the need to sell your home. Your loan will be due in full when you pass on, choose to sell your home, or when you decide that the property is no longer your primary residence. Many reverse mortgages do not have income restrictions and are generally tax-free.
There are a few types of reverse mortgages. One type is known as a single purpose reverse mortgage. These are not available everywhere and are typically offered by state and local government agencies, as well as several non-profit organizations. These loans are granted for specific purposes like home repairs or to pay for property taxes. Another type of reverse mortgage is a Home Equity Conversion Mortgage, or HECM. This loan is federally insured and is supported by the US Department of Housing and Urban Development. This loan is widely available and does not have income or medical requirements like some loans do. Lastly, some private companies offer proprietary reverse mortgages that are in essence private loans – however, this type of loan can be more expensive because of upfront costs. It is important to consider all of the financial implications before you proceed in procuring a senior reverse mortgage. How much you are eligible to borrow will depend on a few factors, including your age, the value of your home, and current interest rates. Some reverse mortgage loan providers have free reverse mortgage calculations for seniors who would like to know how much they can borrow.
Reverse mortgages do not affect a senior’s Social Security or Medicare. These government benefits are entitlement programs. There are however, government benefits that can be affected by a reverse mortgage, including Medicaid and Supplemental Security Income (SSI). These programs are offered to people and families with low incomes and limited resources. SSI and Medicaid are based on the individual or family’s financial resources. Since a reverse mortgage could be considered additional income depending on your disbursement option, it can affect SSI and Medicaid program’s benefits. It is also important to know that Medicaid treats a reverse mortgage as a loan and not income. Money from reverse mortgages should be spent in the month it was received - any money saved will be counted as a valid resource for the following month.
Deciding if a reverse mortgage is right for you is a big decision. You should do research and shop around. Comparing your options and the difference in terms will allow you to make an informed decision.