16 Apr Reverse Mortgages: Generating Cash Flow for Seniors
Just as a Living Trust has become an important part of financial planning, a reverse mortgage can play a role in generating extra revenue for retired seniors. Reverse mortgages have been arounds since 1961, and they’ve always been somewhat controversial. Yet a reverse mortgage can be a real difference-maker for seniors who need cash flow to supplement their retirement income.
In its simplest form, a reverse mortgage is a loan
A reverse mortgage lets you access the equity you’ve built up in your home. As a borrower, you get a tax-free advance on your own home equity. You can choose how you want to receive this advance—it can be a line of credit, fixed monthly payments or a lump sum.
For most reverse mortgages, you must use the proceeds to pay off your existing mortgage; the remainder of the loan comes due when you move, sell the house or die. Reverse mortgages are somewhat complicated, and they can be risky. Because the audience is older Americans, the industry seems to be populated with more than its share of scammers who can’t wait to take advantage of older homeowners.
Warning signs. A broker who:
- Uses high-pressure tactics to talk you into a reverse mortgage.
- Won’t disclose the fees, conditions and risks that come with taking out a reverse mortgage, including the possible loss of the home, which serves as collateral.
Do your research if you’re considering a reverse mortgage: Look to HUD, FTC
- HUD and theFederal Trade Commission have plenty of excellent information.
- Talk to a trusted financial adviser or attorney before you sign anything.
- If the reverse mortgage is a federally insured Home Equity Conversion Mortgage (HECM), as most are, you are required by law to meet with a government-approved counselor.
- Be wary if someone selling home-improvement services suggests taking out a reverse mortgage to pay for renovations or repairs.
- Be very suspicious of claims that a reverse mortgage will get you free anything–income or a free home. You should know by now that nothing’s free.
- Do know that you usually have the right to cancel a reverse mortgage within three days after closing.
- Sign any loan paperwork that you don’t completely understand.
- For married couples: Don’t take out a reverse mortgage using just one spouse as the borrower. A reverse mortgage in one borrower’s name comes due when that person dies. The consequences for the surviving spouse could include collection proceedings and loss of the home.
- Listen to scammers telling you that reverse mortgages are a way to avoid foreclosure or get out of debt.
A Living Trust is an important part of financial planning
While a reverse mortgage can be an important source of income for many seniors, a Living Trust is a critical part of financial planning. Our Trust package includes a Power of Attorney, an Advance Healthcare Directive and a Will. We guide you through the process and we prepare the legal documents. Schedule an appointment with Guideway today.
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