When you’re a young newlywed purchasing your first home, you rarely think years down the road, much fewer decades. Almost certainly, your retirement years are the last thing on your mind, while the most important thing to consider is the color of the baby’s nursery.
But many financial planners agree that smart newlyweds should sit down and begin planning for retirement as soon as they get married. It might not seem like the thing you want to consider on your honeymoon, but it is something you should seriously talk about sooner rather than later. Why? Because before you know it, the years will have passed, and you will find yourself in the unfortunate position of not having enough to retire on.
Enter the reverse mortgage. You will qualify for a reverse mortgage once you turn 62 years old. If you’ve been paying your monthly mortgage payments religiously, you’ll be able to tap into all that equity you’ve built up. It can run into hundreds of thousands of dollars or more and assist you with all the expenses that come with living on a fixed income during retirement.
You can either receive your reverse mortgage proceeds in one lump sum payment or take equal monthly disbursements. You need never pay the loan back unless you leave the house or you die. Using this handy online reverse mortgage calculator, you can figure out how much of a loan you qualify for.
According to a new government report, the first thing you need to take into account is that Social Security (SS) will not be enough to live on by the time you retire. According to government resources, the average monthly SS payout in 2022 is $1,542.22. On top of this, lots of seniors are struggling with ways to fight spiking inflation. With congress remaining relatively unchanged, inflation is liable to get worse.
To stave off the inflation woes and remain in their family home while increasing their cash intake, many are turning to a reverse mortgage which can provide almost instant cash.
With that in mind, here’s what you should know about a reverse mortgage, even if you are years or even decades away from retirement.
Defining a Reverse Mortgage
If you’re still a little confused over a reverse mortgage, simply say it is a home loan designed so that you do not have to pay back the proceeds (or the interest) for as long as you remain in your home. Full stop.
As mentioned previously, if your reverse mortgage application is approved, you can take your proceeds in one lump sum payment (probably the best idea), or you can take equal monthly amounts. It all depends on your needs and wants now that you’re retired and living on a fixed income.
The interest and the loan are to be repaid only if you sell your family home and move away or you die. However, one problem with a reverse mortgage is that all too often, your heirs are left with the responsibility of paying the mortgage off after both spouses die. This is something you need to discuss with them ahead of time.
How a Reverse Mortgage Works
Once again, most reverse mortgages do not require repayment as long as you live in your home. It is only repaid once the primary borrower or borrowers die or sell their home and relocate to another area altogether.
Keep in mind because you’re not making monthly payments, the interest keeps accruing, and therefore the amount you owe will grow over time. However, according to the law, you will never owe more than your home’s appraised value when the time comes for loan repayment.
Don’t be fooled into thinking the government or the bank owns your home when you are approved for a reverse mortgage. You still own your home, and therefore, you are still responsible for repairs, home insurance, and all the property taxes.
If you happen to fail to pay for these items, your lender reserves the right to use the loan proceeds on your behalf to take action on the bills, or they can require you to pay off the loan in full far earlier than expected.
Who’s Eligible for a Reverse Mortgage?
All eligible homeowners must have turned 62 years of age at minimum. At least one spouse must live in the home as a permanent resident. In some cases, one of the spouses might be infirm enough to require long-term care at a medical facility. However, the non-infirmed spouse must remain in the home.
Eligible homes include one-unit dwellings, single-family residences, two-to-four-unit homes, plus owner-occupied dwellings. It’s important to note that some condos, prefabricated homes, and planned unit structures might also be eligible. But almost all mobile homes are not.
In the end, it’s never too early to start planning your retirement. A big part of that retirement might include a reverse mortgage. After you get married and buy your first home, you should seek out the advice of a financial planner who can walk you and your newlywed through the fine details of a reverse mortgage.