At The Gardens at Barry Road, we promote a lifestyle of comfort and convenience with restaurant-style dining, a robust activities calendar and spacious private and companion apartments with full-service solutions. For some residents, selling their homes and using the proceeds to cover their housing and care is a sensible option. However, if you want to maintain ownership of your home, you can still use the equity to cover residential care expenses. A reverse mortgage lets you tap into your home’s equity to supplement your retirement income.
With the typical house in Kansas City costing nearly $200,000, it’s common for an individual’s home to be the most valuable thing they own. A reverse mortgage is a loan that lets you convert some of your home’s equity into cash that you can use for living expenses, including medical bills or residential community fees.
When you take out a reverse mortgage, a portion of it goes towards paying off the balance of your existing mortgage. If you own your home outright, you get the entire amount of the loan. The house is still yours, making this an attractive option if your spouse or other family members live there.
There are several ways you can receive the money, depending on your financial needs and preferences. Some borrowers opt to receive the entire lump sum upfront, using it to pay a community’s move-in fees and then keeping the rest of it in the bank to use as needed. Others prefer to receive the loan amount in monthly installments or to have an open line of credit.
A reverse mortgage gives you the flexibility to use the money in the way that best fits your needs. Along with using it to pay for monthly community fees, you can use the money to make improvements to your home, eliminate your mortgage payment or create an emergency fund.
While a reverse mortgage pays your remaining mortgage balance, you still have other monthly housing-related payments. These include your homeowner's insurance and property tax. The terms of the loan also require you to keep the home in good condition, promptly taking care of maintenance issues and repairs as necessary.
As long as you follow the loan’s terms and conditions, you don’t have to make payments on the loan. Payment doesn’t come due until the last borrower moves out or passes away. After that, the home is sold and the proceeds of the sale cover the full balance of the reverse mortgage.
Like most other loans, reverse mortgages have interest costs that are added to the loan balance. If your financial outlook changes, such as if you become eligible for a pension or you receive an inheritance, you have the option of paying down the interest or total balance of the loan.
Reverse mortgages offer flexibility and the option to increase your retirement income without having to give up your home. As with any type of loan, they come with benefits and drawbacks that are worth considering before shopping around for a lender.
• You can eliminate your mortgage payment.
• Your spouse doesn’t have to move.
• The income from the loan isn’t taxable.
• If the loan balance ultimately exceeds your home’s value, neither you nor your heirs have to pay the difference.
• There are no minimum credit score requirements.
• Reverse mortgages come with lender fees, FHA insurance charges and closing costs, which may add to the balance of the loan.
• A reverse mortgage decreases the equity in your home.
• A reverse mortgage could make you ineligible for Supplemental Security Income or Missouri Medicaid.
• The home can still be foreclosed on or the loan may come due if the owner forgets to pay HOA dues, property taxes or homeowner’s insurance.
To be eligible for a reverse mortgage, you must be at least 62 years old. You must also have sufficient equity in your home. This amount varies by lender, but most lenders require applicants to have at least 50% equity. The process includes a comprehensive financial assessment to ensure that a reverse mortgage is a good fit for you, and you’re required to attend a counseling session with a HUD-approved counselor to learn more about the loan.
Additionally, the home must be your primary residence or that of the other borrower(s), such as your spouse, if you live in an assisted living community. The house must be in good condition and meet FHA standards, and it can’t be a manufactured or mobile home.
Before taking out a reverse mortgage, there are other housing and borrowing options that you may want to consider. A home equity loan is a potentially cheaper alternative that also lets you cash in on your home’s equity. You may also be able to lower your mortgage payment by refinancing your current mortgage. If your spouse lives in the home, they may qualify for utility assistance, which may free up money that can be used for assisted living expenses.
Reverse mortgages may be good options for those who want to maintain ownership of their home but need to bump up their retirement income.