3 Unknown Secrets About Reverse Mortgages

What a reverse mortgage is and how it works continues to be a mystery to many, but here we will begin to uncover some of the secrets about one of the most misunderstood loan programs that has ever existed. 

1. A reverse mortgage can be used to finance the purchase of a home. 

As an alternative to purchasing a home with cash or taking on a mortgage with payments, a reverse mortgage can help to preserve cash for retirement and expand the purchasing power for a new home.  A one-time cash payment is made at closing, the reverse mortgage finances the remainder of the purchase price, and the buyer is required to live in the home as their primary residence and pay the property taxes, maintenance fees and insurance.

2. A reverse mortgage credit line can pair well with retirement planning strategies. 

Some financial planners are recommending to their clients to take out a reverse mortgage line of credit to have on standby throughout retirement.  They work like home equity lines of credit (HELOCs), but with two big differences:

• No payments are required
• The unused portion of the line of credit grows at the same rate as the interest on the loan balance 

When financial markets are down, borrowers can tap into their reverse mortgage line of credit instead of withdrawing from investments or selling off stocks.  This is a strategy that can be used when the stock market is down or not performing at expectations.

3. A reverse mortgage can be used to increase cash flow. 

For many homeowners, their home is their largest asset.  However the only way to take cash out of a home is by either selling it or completing a cash out refinance.  Selling requires to go out shopping for a new place to call home, and a conventional cash out refinance requires monthly mortgage payments.  A reverse mortgage can be used to take advantage of increases in home appreciation by converting the increased equity into cash.  It turns a non-liquid asset, a home, into a liquid one, and it doesn't decrease monthly cash flow since a mortgage payment is not required. 

Wanting to learn more about reverse mortgages and if you can qualify for one?  Read more to find out if this can be the right option for you.