Reverse mortgages are recognized by accountants and financial advisors as a great way to access an important retirement asset, the equity in your home. Imagine no more monthly mortgage payments while you continue to live in and retain ownership in your home.

What is a Reverse Mortgage?

A reverse mortgage is a mortgage that enables homeowners age 55* or older to convert some of the equity in their homes into cash. Some Reverse mortgage programs allow homeowners to finance a new home purchase. With a reverse mortgage you don’t make mortgage payments and you continue to live in and own your home as you always have.

Unlike a traditional home equity loan or home equity line of credit (HELOC), you don’t have to repay a reverse mortgage until the home is sold or the last surviving borrower (or a non-borrowing spouse who meets certain requirements) no longer lives in the home, as long as you meet loan obligations. The homeowners must maintain the condition of the home and stay current with property taxes and hazard insurance.

*For certain Reverse mortgage products only, excluding Massachusetts, New York, and Washington, where the minimum age is 60, and North Carolina, Texas, and Utah, where the minimum age is 62.

How does a Reverse mortgage work?

• You must be a homeowner 55* or older with significant equity, the more equity the better.
• The amount of loan depends on the borrower’s age, interest rate, loan payoff, location, credit profile, appraised value and the type of Reverse mortgage program you choose.
• Proceeds from the Reverse mortgage pay off your current mortgage and you can get the remainder as cash or a line of credit.
• As long as you continue to pay your property taxes and insurance and uphold the terms of the loan you continue to live in your home as you always have free of mortgage payments. The loan doesn’t have to be repaid until the last living borrower leaves the home or the home is sold.
• Imagine how your finances will look after you eliminate your monthly mortgage payments and deposit that cash in your account, a retirement you can feel good about.

*For certain Reverse mortgage products only, excluding Massachusetts, New York, and Washington, where the minimum age is 60, and North Carolina, Texas, and Utah, where the minimum age is 62.

Pros and Cons of Tapping Home Equity

How you access your home equity will likely affect your monthly cash flow, depending upon the method you select. A home equity loan or a cash-out refinance will typically increase your monthly payment, not ideal if you’re considering retirement. A Reverse mortgage typically removes your existing monthly mortgage payment while retaining ownership to your home.

Another consideration is taxes. Pulling equity from your home is not typically a taxable event, but downsizing involves the sale of your home and that may create a taxable event. Consult your tax professional.

There is no one-size-fits-all way to use your home equity for retirement. The best option for you will depend on your personal situation. Speak with a financial expert and take time to carefully consider each option to make the right choice for you. This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you consult an independent financial advisor. For tax advice, please consult a tax professional.