Managing Your Equity
Spending Your Equity
You may already have plans for how you want to use your reverse mortgage proceeds. But it's wise to remember all the work that's gone into building up those funds, and how important they are to your financial security - particularly if your home is your largest remaining financial asset.
Of course, there was a reason you sought a reverse mortgage in the first place. Whether it was to improve your home, supplement your income, or pay for medical expenses, the important thing is that you decided to use your equity to improve your lifestyle and stay in your home. As long as you manage your money wisely and keep your goals in mind, your reverse mortgage will help you do just that.
Estimating What Will Be Left
How much of your home's equity will be left after repaying the loan depends on many factors: the size and frequency of your loan advances, increases or decreases in your home's value, and future interest rates, among other things.
Because so many variables are involved, no estimate will be absolutely certain. But I can help you estimate your leftover equity as accurately as possible, based on how and when you plan to use your loan proceeds.
Considering Your Heirs
Whether you tap into your home equity with a reverse mortgage or through some other financing program, the more of that equity you spend now, the less will be left for your heirs. That's why it is important to think about how you want to involve your children or other loved ones in the process.
Often, the adult children of senior borrowers are happy to see their parents continue living in their homes, and relieved to know that they are financially secure.
Tax and Public-Benefit Considerations
The IRS currently treats reverse mortgage proceeds as loan advances rather than as taxable income. You may encounter tax implications if you use the funds to purchase an annuity, however, so you should check with your tax advisor.
Proceeds from a reverse mortgage will have no affect on Social Security or Medicare benefits because they are not need-based. Benefits such as SSI and Medicaid, however, may be affected if you carry any of your reverse funds over from one month to the next. You should check with your local benefits program administrator to determine how a reverse mortgage may affect your eligibility.
Next Topic: Reverse Mortgage FAQs
Reverse Mortgage Basics!
Instead of paying your lender, your lender pays you.
Instead of reducing your debt as the loan term progresses, you increase it.
Instead of turning your income into equity, you turn your equity into income.