In retirement, you can better manage your spending.
Retirement causes a major income loss for many seniors, and their largest monthly expense may be their mortgage. You can continue to pay your obligations and augment a declining income with a reverse mortgage.
You're not required to move
A reverse mortgage from reverse mortgage lenders Los Angeles enables you to age in situ rather than having to move out of your house (and potentially stay near friends and family). A reverse mortgage does have a fee, but in the long run it can be less expensive to obtain one than to relocate and either buy another house or rent in a different area.
You are exempt from paying taxes on the income.
Because the IRS views the income from a reverse mortgage as “loan proceeds,” it is not taxable. However, because tax regulations can be complex, it is advisable to seek guidance from a tax expert before deciding to take out a reverse mortgage.
If the balance exceeds the value of your home, you are safeguarded.
A reverse mortgage balance may eventually surpass the property's fair market value because it increases over time. However, because a reverse mortgage is a type of “non-recourse” financing, the total amount of debt that must be repaid is never greater than the value of the property. As a result, in this situation, a mortgage lender cannot make any claims against your other assets or heirs.
Your heirs can choose.
Although reverse mortgages can be paid off earlier by the borrower, they normally expire when the person sells the property, moves out, or passes away. Heirs to an estate have a number of options, including: If the debt exceeds the value of the property, the heirs can settle the loan by returning the title to the lender. Alternatively, if the debt is less than the value of the property, they can keep the house and refinance the reverse mortgage balance. The lender may then submit a claim to the insurance for any outstanding debt (almost always the FHA).
Reverse mortgage disadvantages
You must pay for it.
Lender fees (origination fees are restricted at $6,000 and vary based on loan amount), FHA insurance fees, and closing costs are some of the expenses associated with reverse mortgages. The loan sum may be increased to cover these expenses, but the borrower would then have less equity and more debt. Additionally, if your interest rate changes on a monthly basis, you'll have to pay annoying service costs each month that can be as much as $35.
Until you have paid off the loan, you cannot deduct the interest from your taxes.
When you were paying off your mortgage, you might have benefited from the mortgage interest tax deduction, but you won't be able to deduct the interest on a reverse mortgage each year. That benefit is only available if you are truly paying off the debt.
You might unintentionally disobey other program restrictions.
Simply put, if you have a reverse mortgage, you can be in violation of the asset limitations for the SSI and Medicaid programs. This is sophisticated material, so before looking for a reverse mortgage program, make sure to consult an elder law attorney or a legal clinic.
Your house may go into foreclosure.
It can appear hard to foreclose on a reverse mortgage because no monthly principle and interest payments are necessary. Contrary to popular belief, foreclosure can occur if you fall behind on your HOA dues, homeowner's insurance, or property taxes.
You could find it challenging to navigate status changes.
Reverse mortgages can be challenging, and if your situation changes in any way, your options may also change. Would you still be regarded as a resident of your home if you moved into a long-term care facility, for instance? Does your spouse have to vacate the property if you get a reverse mortgage after getting married? It's preferable to see a lender or elder law expert attorney for further information on these and other issues, or to get free legal advice through a pro bono clinic.
