Amy Moshier of Custom Publications reports that baby boomers are swinging a trend towards using reverse mortgage funds to make retirement easier. A reverse mortgage is similar to a home equity loan, in that a homeowner is taking out a loan based on equity in the house. The difference is that a reverse mortgage doesn’t have to be repaid until the homeowner permanently moves out of the house or passes away.
“It can be used for estate-planning purposes, or just for people to live on,” said Frederick Grief, a certified public accountant with CPA Network, LLC.
Just like buying a home, those who wish to use their equity through a reverse mortgage must apply for the loan, have good credit, and be approved. However, unlike a traditional mortgage, those with reverse mortgages will be receiving checks from the bank rather than paying the bank on a monthly basis.
Homeowners have four options when determining how to receive their money: a lump sum, a line of credit, a fixed monthly payment or a combination of these, according to the National Reverse Mortgage Lender’s Association.
There are, however, precautions that should be taken when considering a reverse mortgage. For example, if the homeowner dies while still in the home, his/her heirs will be responsible for paying off the loan. There may be other estate issues as well, so seniors should consult their financial planner before choosing the reverse mortgage.
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