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Breaks for Seniors: Reverse Mortgages
Many seniors find themselves in the same boat;
they have an expensive home that has increased in value substantially,
but they are struggling when it comes to day-to-day cash flow.
Yet, they that if the sell the home, they will have to turn
a significant amount of their profits over to the tax man.
A regular home equity loan, or second mortgage, will only help
the cash flow problem temporarily; after the loan amount is
spent, then they will be faced with two mortgage payments and
even less cash in the bank. If this sounds like your circumstances,
then you should know there is another option out there that
can help you pay for your retirement while avoiding costly
taxes. A reverse mortgage has saved many seniors from retirement
financial ruin.
First, let’s look at what a reverse mortgage is. Reverse
mortgages are loans based on the equity in your home, but
unlike traditional
mortgages, you do not have to make any payments on the loan
until you decide to move, or until one of the homeowners passes
away. The loan amount increases over the term of the loan,
as interest accrues. If you sell your home, you must pay the
entire loan amount, and if you or your spouse passes away,
the entire loan amount then becomes due.
That may sound a little scary, but a reverse mortgage can
become a win-win situation for both you and your heirs. For
you, you get to cash in your home, and enjoy your retirement
without the stress of worrying about money, and without selling
your home and turning the profits over to the IRS. The only
fees you’ll pay are the fees to set up your loan. While it’s
true your heirs will be left facing a decision between selling
the home or paying off the loan in full to keep it, a reverse
mortgage can actually be beneficial to them, as well. If they
sell the home and use part of the profits to pay off your loan,
then the profit they make on the home is likely to be less
than the $250,000 cap for tax free capital gains; while they
may get less on paper, they will be getting the money tax free.
If your home has depreciate since you started your reverse
mortgage, and the amount your heirs can sell it for is less
than the outstanding home loan amount, they are only obligated
to pay back the total sale amount. They will never be out of
pocket covering the loan.
A
reverse mortgages is a great way to tap into the value
of your home without selling it, but there are a few drawbacks
to be considered. First, reverse mortgages are not
available to anyone under the age of 62; which means if you
and a spouse
jointly own a property, you cannot apply for a loan until you
both reach that age. Second, reverse mortgages can be expensive,
as the loan amount sits and accrues interest when you are not
making any payments. For this reason, you should not take out
a loan unless you home has seen a significant increase in value
since you purchased it; you simply won’t get the most out of
the reverse mortgage loan. You must own your home outright
to get a reverse mortgages, or at least be able to pay off
any remaining mortgage payments out of the loan money you receive.
The pros and cons of a reverse mortgage can only be determined
on a case by case basis. Pay a visit to a financial expert,
if you are considering a reverse mortgage, to determine if
you are a good candidate or not.
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SolveYourProblem.com : 2007
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