Are you in your sixties or even older? Are you willing to convert part of the equity in your home into a tax-free income?
Well, do not worry. For this, you do not have to give up your title, nor do you have to sell your home. There is no need to even go for a new mortgage!
Reverse mortgage is a loan that offers this golden opportunity.
‘Reverse mortgage’ is a recently introduced product. Due to this, there are many myths about a reverse mortgage.
Homeowners have a misconception that a reverse mortgage is to be used in order to supplement their retirement income, get some cash for emergencies or to pay for health care.
Bear in mind that the bank is not meant to take your house away and give you money in return!
Here are some common myths and the facts about a reverse mortgage.
Myth: Reverse mortgages are meant for desperate people.
Fact: Instead, it provides you with an excellent financial planning tool and can be used by people from all walks of life.
Myth: One can get a reverse mortgage easily and there are no particular eligibility conditions related to age as such.
Fact: There are two important things to be kept in mind. First, you should have equity in your home. Second, you must be 62 or above.
Myth: If a person still owes on his home, he can not apply for a reverse mortgage.
Fact: Even if you have certain debts or a balance on your first mortgage, you are still eligible to apply for a reverse mortgage.
But, the condition is that you will have to use the proceeds to pay off the mortgage first.
Myth: The amount that one can get is fixed.
Fact: The amount that you get depends on various factors such as, the age and value of your home, your age at time of closing and interest rates.
Myth: You can just get monthly payments.
Fact: You can get a combination of monthly income and a line of credit. Also, you can opt for a lump sum or a line of credit.
Myth: One has to pay taxes on the monthly payments to the government.
Fact: These funds are tax-free. That is, you need not pay any additional tax on these monthly payments.
Myth: There is always confusion as to who will own the title of the house.
Fact: You still own the title.
So, these were some myths and facts about reverse mortgaging.
But, it is also important to keep the following things in mind before you decide to get a reverse mortgage.
o Seek advice from a counsellor or a lawyer.
o In case you die, your home is passed on to your heirs and once this is done, the mortgage amount becomes due. Then, it will be up to your heirs whether to keep or to sell the house. They are also authorised to keep the excess sales proceeds, if any.
o Prepayment penalties are not there.
o In case you move, the amount of mortgage will be due and will have to be repaid.