Reverse Mortgage can provide cash flow for investing
Reverse Mortgages can be helpful to a number of readers who are homeowners, or whose parents are homeowners. A reverse mortgage is a type of cash-out refinance loan. The collateral must be the primary residence of a person or persons 62 years of age or older (there can be no person under that age on title).
Contrary to popular belief, taking a Reverse Mortgage does not “sign away the house to the bank.” It is simply a loan that requires no repayment as long as the borrower(s) live in the house.
Consider a Reverse Loan as a cash management tool. Many older Americans have minimal income, limited perhaps to Social Security. Their main nest egg is equity in their home, which is illiquid. A Reverse Mortgage offers monthly checks to the borrower for the rest of their lives, or they may elect to take the entire draw of equity at closing, which can be invested in other instruments for cash flow and return.
Repayment of a Reverse Mortgage is required by the lender when the occupant borrower(s) die, or move out of the home as primary residence. The property is part of the deceased’s estate, and his or her heirs could repay the loan, and recoup any net proceeds. For example, Ma & Pa draw $300k from a Reverse Mortgage. They enjoy cash flow from their equity of $1,500 each month. This goes on for five years, until they both pass away. Their heirs sell the house for $345,000, and repay the loan ($90,000 plus $5,400 interest). Net proceeds of $250,500 (minus Real Estate settlement costs) are realized by the heirs.
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Post from: Reverse Mortgage Loan Blog
