If you have a parent or grandparent who owns a house, then you need to watch this video.

There’s a lot of confusion about reverse mortgages, so I’m going to clear it up in this TikTok video.

 

Ksmithcredit – TikTok Reverse Mortgage Video

Guide on Reverse Mortgage

1. What is a reverse mortgage

A reverse mortgage lets those 62+ access home equity without selling, paying off any existing mortgage.

2. Benefits of a reverse mortgage

The beautiful thing about this is that you only repay the loan when you sell the home or pass away. Yes, you heard that correct. You will not have to pay on this loan for the rest of your life. This is why a reverse mortgage can be really great for those 62 and older. If you are looking to tap into the equity in your home and not have to worry about the stress of making mortgage payments anymore and just want to live the rest of your life comfortably, a reverse mortgage can work perfectly. 

3. Reverse home mortgage goes to the heir not the bank

Also, once the owner passes away, the home goes to the heir and not the bank. Many complain about reverse mortgages, viewing them as banks seizing homes upon the owner’s death, which dismayed heirs. Initially, they suited those unconcerned with bequeathing their homes, like childless retirees.

No need to worry now; since Ronald Reagan’s 1989 law, reverse mortgages are federally backed, securing heirs’ inheritance.

 

4. Is the balance that you owe on the property will increase over time?

People often mistakenly believe that their property debt will grow over time. This is true if you do not pay the interest. See, let me give you an example. Let’s say your house is worth $700,000 and you owe $200,000 on it. That means you have $500,000 in equity.

With a reverse mortgage, you’d still owe $200,000 but eliminate monthly payments. For example, a $1,000 mortgage payment drops to $0, but you’ll incur about $500 monthly in interest. If unpaid, this interest adds to your balance, reducing your home’s equity and potentially leaving you owing as much as the house’s value when passing it on.

Now, some people fear that the home can be worth less than what the balances as a result. But remember, this is now a federal loan, and as a result, thanks to the Mortgage insurance, which will be included in everything, it will not allow for the debt to be more than what the home is worth. So, as an heir, if you ever wanted to be done with the loan, you can just sell the house.

5. Reverse Mortgage Property Tax

The last big issue that people have on these types of loans is that if you don’t pay your property taxes or homeowner’s insurance then you would lose the home but really that’s on any type of home loan that you have to pay property tax and it’s not in your best interest to not to have homeowner’s insurance. If I don’t pay the taxes for my home, then I would lose my house.

Now, some mortgage loans may include the property taxes which is probably what people are wanting because they don’t want the responsibility of paying IRS out of pocket each year, but honestly that is just a responsibility thing because everyone has to pay property tax.

 

6. Understanding the IRS of Reverse Mortgage

Regarding IRS concerns, it’s important to note that withdrawing equity from your home, such as taking out $100k to settle debts or finance a holiday, doesn’t attract taxes. This means the $100k or any other amount you extract from your home equity and receive in your bank account remains untaxed, offering a tax-free way to leverage your property’s value for immediate financial needs or personal enjoyment.

7. Reverse Mortgage Cost

Now, let’s talk about the cost. You will have Mortgage insurance premiums which will be an upfront fee of the home’s appraised value or the FHA lending limit whichever is less, a .5% annual fee of the outstanding balance, closing cost which will be around 2% of the home value, servicing fee of around $30/month, and the interest. All of these fees will already be included, and you will have nothing out of pocket. The best part is that you do not have to have the best credit to qualify. You can use these funds to pay off high interest debt like credit card debt and consolidate them into just the one payment with your mortgage. 

My biggest advice when going the reverse mortgage though would be to continue paying at least the interest and fees every month so that your balance doesn’t increase so it’s not a hassle for any heirs. I hope my video was able to help and if you would like a free consultation on getting out of debt, fill out the form below.