By haroldllus12907327, Jun 29 2015 07:45PM
This blog is made up of three parts. The first part will discuss what a reverse mortgage is, the second part will discuss how to use it to pay for long term care and the third part will discuss when a Reverse Mortgage is a bad idea.In the series we also discuss how it works in unison with Medicaid/Medi-Cal in California.
A reverse mortgage is a loan for homeowners 62 and older. It uses a portion of your home’s equity as collateral. The loan generally doesn’t have to be repaid until the last surviving homeowner moves out permanently or passes away. At that time, the estate has approximately six months to pay the balance of the mortgage or sell the home to pay off the balance. All remaining equity is generally inherited by the estate or children. These loans are also called Home Equity Conversion Mortgages.
If your property is worth less than the balance of the reverse mortgage when you permanently move out, the estate or your heirs are not liable if the home sells for less than the balance.
Almost all homes are eligible as long as the Borrower lives there as their primary residence. Mobile homes, however, have special requirements. Condos and townhouses may be eligible as well. There are minimal income and credit worthiness requirements. The government wants to make sure you can afford to live in your community, in your home, keep it up and pay your real estate taxes and insurance.
There are several ways to receive the proceeds from a reverse mortgage including income:
Lump sum of cash at closing
Equal monthly payments as long as the homeowner lives in the home
Equal monthly payments for a fixed number of years
Line of credit
Any combination of the above
And best of all, you can’t outlive a reverse mortgage and its all tax free!
There is, however, one big negative when it comes to reverse Mortgages. You cannot obtain an annuity in California and a number of other states if you have a reverse Mortgage. So, if you want the benefits of an annuity in your retirement plan or as a safe investment, you will have to purchase the annuity first. A comprehensive financial plan can help you resolve the best way to go.