Let’s set the scene. You’re thinking of retiring from work and enjoy the rest of your life doing the things you didn’t get a chance to do earlier on in life. As someone that is going to retire soon, there will be one thought entering your mind. Money!
No doubt you will have a pension to help you pay your bills when you quit your job and give up working for good. But there will be times where you need to gain access to a lump sum of cash. For example, you might want to buy a new car. Or perhaps you’d like to go on a round-the-world trip on an ocean liner.
You might even want to build an extension or treat yourself to a new swimming pool! Of course, all those things need money. So, the question is, how can you get large sums of money when you aren’t working anymore?
What is a reverse mortgage?
Apart from robbing a bank or selling your worldly possessions, there is one practical step you can take. I am, of course, talking about getting a reverse mortgage. If you’ve never heard of that term before, let me explain.
You know the house you live in? You borrowed some money to buy it, right? The most common way to borrow money for buying a house is to get a mortgage on it. When you retire, you can unlock some of that money in your home by getting a reverse mortgage in Florida, amongst other places.
The way it works is simple. You borrow money against the equity you have in your house. But the beauty of reverse mortgages is you don’t have to pay anything back! At least, not unless you sell your home, or it gets sold following your death.
Reverse mortgages are growing in popularity. That’s because they enable homeowners to top-up their retirement income. As a result, they can lead a comfortable life in their twilight years.
What can you do with the proceeds?
There are few exceptions over what you can do with the money you receive from a reverse mortgage. It all depends on what type of reverse mortgage you get, because there are three main options to choose.
Single-purpose reverse mortgages get offered by some states and organizations. As the name suggests, you can only use them for a single purpose. Examples include home improvements or paying property taxes.
Federally-insured reverse mortgages impose no restrictions on the proceeds. You might have seen these advertised before as HECMs. It’s an acronym for “Home Equity Conversion Mortgages.”
Finally, you can get “proprietary” reverse mortgages. To all intents and purposes, they are the same as federally-insured ones. The only difference is they get sponsored by private firms rather than the federal government.
Is there anything else you need to know about reverse mortgages?
The only thing that you need to remember is that you must still pay your property taxes. And your home insurance, of course! So, what will you spend the proceeds of your reverse mortgage on?