Reverse mortgage information has recently improved in the financial world due to the apparent success of regulations that were put in place in 2013. The Reverse Mortgage Stabilization Act of 2013 has helped garner these financial options some newfound respect in the industry.
Safeguarding provisions established by the Act, such as a restriction on initial borrowing amount, can help protect seniors from withdrawing all of their equity from the very beginning of the loan by keeping approximately 40% of the total equity on reserve for at least a year after the initial disbursement. Seniors must also prove that they have the resources to pay taxes and insurance during the program, or the bank can provide an escrow option to guarantee the funds are available for such expenses.
Using an HECM Line of Credit to Generate Income in Holtsville NY
Financial advisers recommend establishing a Home Equity Conversion Mortgage (HECM) line of credit as a way to establish a financial cushion, even if a senior doesn’t need it right away. In certain cases, this makes more sense than withdrawing a lump sum, since the HECM line of credit will actually increase in cash value the longer it remains dormant.
Another important part of reverse mortgage information that advisers recommend is using the HECM line of credit tactic. This will help protect retirement accounts from stock market fluctuations. This is possible because HECM withdrawals are tax-free. When the market is less favorable for drawing on investment accounts as a source of income. Seniors can simply draw against their HECM line of credit. This way, when the markets rebound, a senior’s retirement accounts don’t take much of a hit. When investment portfolios bounce back, the line of credit can then be repaid.
HECM line of credit payments can also provide a solution for seniors looking for a way to delay taking a hit on early social security payments. By waiting to access social security funds until later in retirement, retirees can ultimately expect an increase the payment amounts when they are finally withdrawn.
Lump Sum: Paying Off a Forward Mortgage to Improve Cash Flow in Holtsville NY
Using the lump-sum proceeds from a reverse mortgage to pay off a forward mortgage is another strategy that financial planners recommend. This tactic frees up cash flow for living expenses by eliminating what is typically the largest household expense for many seniors.
However, advisers don’t recommend using the lump-sum payment as leverage for taking on other debt such as a down payment for a big-ticket item or a second home. This can lead to budget problems down the road. Not to mention decreasing the senior’s financial nest egg and overall borrowing power. The goal is to use the reverse mortgage lump sum payment in a conservative manner to decrease existing debt and free up cash flow.
Financial planners are considering the new reverse mortgage information to be promising due to the 2013 regulations having taken effect. These unique loan options can be viewed as a fiscally responsible way for seniors to put their money to good use for a comfortable and secure retirement.
Many people look at the process of a mortgage and wonder how exactly do you put your mortgage in reverse?
In order to understand a reverse mortgage, let’s first investigate at a normal mortgage for a first time home buyer. When you first start the mortgage process, you shop many mortgage lenders or perhaps employ the services of a mortgage broker or loan officer who review your credit and financial information. They often look at your credit history, long term and short term debt, income and expenses in order to determine how much money you can borrow, at what interest rate, and for how long. They use all this information to make sure that you are capable of paying back the money, plus interest.
Based on the terms that you and your mortgage lender or broker have agreed upon, you pay a monthly, bi-monthly, or sometimes balloon payment as the principal and interest payment become due. The mortgage broker should work with you to determine a feasible way to pay the mortgage, meaning it should not put you into financial hardship.
You pay the mortgage payments until the life of the loan is done, and you have paid all the money back that you have borrowed, as well as interest in return for borrowing the money. Every payment that you have made up to the end of the life of the loan has decreased your principal; the dollar amount borrowed, and increased your equity in the property. The equity is what the property is worth.
Over the years, it is most likely that your property has appreciated, as purchasing property is a great investment. In which case, your property that you purchased at $200,000 may be worth $300,000 now, or more.
Now this is where reverse mortgages come in. Older home owners, who usually own their property out right, or perhaps have a small amount owed to a mortgage lender, have the ability to do a reverse mortgage. Some older home owners become short on cash, as they are often retired and do not have a lot of money coming in. What a reverse mortgage does is it allows home owners to use the equity in the home as cash. The mortgage lender actually pays the home owner every month, from the equity built in the home.
The home owner no longer makes payments, but enjoys the money that his or her home has provided. As opposed to the regular mortgage in which the equity increases, a reverse mortgage actually decreases the property’s equity. The amount that can be borrowed is directly related to the homeowner’s age, value of the home, interest rate, and life span of the owner.
The money removed from the equity is usually recovered when the home is sold at the time of the owner’s death in Holtsville NY.
Getting a reverse mortgage can be a great option for older home owners so they can enjoy themselves, with out having to worry about financial hardship. It is also a great benefit of a home owner to be able to use the equity built in the house, as in the act of refinancing.
If you are an older home owner, who could use some extra money, speak with a loan officer who can assist you in making this transaction occur. A reverse mortgage may solve many financial problems, including those that may be related to health and wellness care.