Per the Federal Trade Commission (FTC), this type of loan works by letting homeowners convert a portion of their house's equity into cash without having to sell their home or make regular monthly mortgage payments1.
Dissimilar from your traditional forward mortgage, where the borrower must begin repaying the loan right away, borrowers do not need to pay off money received through a HECM until after the last borrower no longer lives in the home2. There are no monthly mortgage payments required1.
How Can You Use Reverse Mortgage Cash?
The proceeds you get from a reverse mortgage can be utilized for anything you wish. Longbridge has many methods of receiving funds and how you decide to use the funds depends completely on your retirement goals and personal financial situation. If you have an existing mortgage or lien on your house in Auburn, the cash from the Home Equity Conversion Mortgage will first be used to repay the loan. The remaining funds can then be received in any of the following ways:
- A single payment, income tax-free.5
- Steady, tax-free monthly payments.5
- A line of credit, as a “safety net” for future use if or when you need it.
- Any combination of these methods.
Each borrower is different, and our clients have found creative ways to use a Home Equity Conversion Mortgage to improve their incomes, lifestyles, and monthly cash flow. Here are a few quick illustrations of how Home Equity Conversion Mortgages can work to your benefit:
- Have more cash available to pay for everyday expenses and bills.
- Reduce or eliminate debt or credit card balances.
- Help cover medical bills, which can make "aging in place" easier.
- Assist a grandchild or child with life expenses, like college tuition or a down payment on a home.
- Decrease your taxable income: avoid making taxable withdrawals from IRA, 401(k), or other retirement plans by replacing the money with income tax-free HECM funds5.
- Make repairs, updates, or improvements to your house to live more comfortably.
- Have a line of credit for occasional expenses or emergencies.
- Set aside cash to help pay for long-term care in the years ahead.
Can My Children Keep my Home?
Yes. One of the benefits of HECM loans is that your heirs are provided the option to get alternative financing, pay off the reverse mortgage, and keep the house. However, the money to repay the HECM loan most often comes from the sale of the home itself after the house passes to your children.
In the rare event that the amount of the reverse mortgage repayment is more than the house is worth, neither your heirs nor you will be obligated to repay the difference. Insurance from the FHA is a part of every Home Equity Conversion Mortgage, so that would make up for any shortfall.
