Reaching the ‘Golden Years’ of life is supposed to provide wonderful free time for you and your spouse to travel, explore the world, and enjoy many things you might have put off in order to raise a family, build your career, and more. However, while it may be a great time for some, it can also be challenging, especially with declining health, physical strength, and other factors making it difficult to tend to one’s own basic care.
Depending on your financial situation, you may have a difficult time figuring out how to pay for this level of care. A reverse mortgage may be an option to consider.
In short, a reverse mortgage is essentially what it sounds like, a mortgage that works in reverse. The Federal Trade Commission provides some useful information about reverse mortgages, including:
“When you have a regular mortgage, you pay the lender every month to buy your home over time. In a reverse mortgage, you get a loan in which the lender pays you. Reverse mortgages take part of the equity in your home and convert it into payments to you – a kind of advance payment on your home equity. The money you get usually is tax-free. Generally, you don’t have to pay back the money for as long as you live in your home. When you die, sell your home, or move out, you, your spouse, or your estate would repay the loan. Sometimes that means selling the home to get money to repay the loan.”
You will come across three different types of reverse mortgages: single purpose, proprietary, and federally insured. Each may offer different incentives for people, but while television commercials may espouse the virtues of reverse mortgages, they are not for everyone.
Key Things to Consider
Before committing to a reverse mortgage, it’s important to consider these facts.
- The fees and interest rates can be high. Because these are loans, and they are based on equity in the house itself, there is still risk involved in it for the lender. That’s one reason why fees and interest rates tend to be higher than a traditional mortgage.
- When you die or move out, the loan needs to be repaid. That means you may not be able to leave the house to children or grandchildren, unless they’re able to repay the loan in full at that time.
- Most reverse mortgages have variable interest rates. While interest rates are historically low right now, that will likely change and when they rise, so will those reverse mortgage costs (FTC).
A reverse mortgage can certainly help pay for long-term care, but it isn’t for everyone.
**This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes tax, legal, insurance or investment advice.**
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