Finance

How Reverse Mortgages Can Help Seniors Rebuild Their Lives

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How Reverse Mortgages Can Help Seniors Rebuild Their Lives

Reverse mortgages provide seniors with an option for turning some of their equity in their homes into cash, whether that be via monthly payments or line of credit. Repaying reverse mortgages does not need to happen until all borrowers (usually couples) sell, leave for at least a year or pass away.

When Disaster Strikes

Natural disasters can wreak havoc in communities and homes alike, leaving in their wake widespread destruction that requires extensive rebuilding work to recover. Disaster recovery for seniors living on fixed income is about more than simply fixing damage: it involves rebuilding lives. Single-purpose reverse mortgages offer seniors who’ve fallen on hard times access to finances to get back up and running after disaster strikes.

Loans issued by state and local governments, nonprofit organizations and private companies tend to be less costly than HECM mortgages and can be used for specific projects like repairs or home improvements. Furthermore, these types of reverse mortgages can often provide more flexible loan funds distribution; you could receive your funds as either lump sum payments, fixed monthly installments or even as an ongoing line of credit.

Reverse mortgages are taxable, yet don’t interfere with benefits like Social Security or Medicare. The IRS classifies money drawn from reverse mortgages as loan proceeds instead of income, unlike distributions from retirement accounts like 401(k)s and traditional IRAs where taxes must be withheld annually on withdrawals from these funds.

USA TODAY spoke with heirs of homeowners with reverse mortgages who shared stories about obstacles preventing them from receiving funds they needed – such as paperwork errors and unclear property titles. Although ultimately families were able to resolve their mortgages through hard work, resolution wasn’t immediate.

Emergency Mortgages

Reverse mortgages come with high fees and may not be suitable for every borrower. They’re backed by the federal government through its Home Equity Conversion Mortgage (HECM) program, while lenders must purchase mortgage insurance to protect themselves in case borrowers default on property taxes, homeowner’s insurance premiums or maintenance costs. When this happens they can foreclose on your house and foreclose; but typically you’ll repay through proceeds of selling your house instead of foreclosure proceedings.

Reverse mortgages offer many seniors living on Social Security or pension incomes who are struggling to keep pace with rising healthcare and housing costs a financial lifeline. Funds from reverse mortgage loans allow these borrowers to pay bills and remain in their homes longer.

But reverse mortgages can also be an expensive way to tap equity in your home and may limit your options when it comes time to move or sell. The HECM program mandates mandatory counseling sessions prior to taking out a reverse mortgage loan, providing a great opportunity to see if a reverse mortgage suits your needs or if alternative solutions like home equity loans/lines of credit/traditional mortgage loans could better meet them.

Insured Mortgages

Reverse mortgages allow senior homeowners to access the equity built up in their home. Payment does not need to be made until death, sale or departure and equity will increase as house values do. Reverse mortgage loans may help clients cover expenses while staying in familiar surroundings and even reduce taxes; but they may not be suitable for everyone depending on their financial needs and situation.

Reverse mortgages can be costly. The federal government insures most reverse mortgages through its Home Equity Conversion Mortgage program and lenders typically charge fees for property appraisals, loan servicing/administration/closing costs and mortgage insurance premiums – costs that make reverse mortgages more costly than traditional loans or home equity lines of credit.

Reverse mortgages can be useful tools when clients require extra funds in retirement to meet needs or pay off existing mortgages, though it’s usually best avoided for people planning on moving soon. When taking out this type of loan, it’s essential that clients work with lenders that understand this product well and can offer advice about alternative products and strategies – HUD-approved counselors may also offer assistance as this information provides insight into eligibility, costs, and any other considerations related to taking on such debts.