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  • Diana Feldman

Leveraging Your Home Equity: Using a Reverse Mortgage for Retirement

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As you approach retirement, you're likely exploring various financial options to ensure a comfortable and worry-free future. One such option is a reverse mortgage, a powerful tool that can play a significant role in your retirement planning. In this comprehensive guide, we'll delve into how a reverse mortgage can be a valuable asset in securing your retirement, including the options for receiving funds and the potential tax implications.

What Is a Reverse Mortgage and How Does It Work?

A reverse mortgage is a unique financial product that allows homeowners aged 62 and older to convert a portion of their home equity into tax-free cash without having to sell their home or make monthly mortgage payments. Instead of you paying the lender, the lender pays you.

Here's a brief overview of how it works:

1. Loan Disbursement Options: When you secure a reverse mortgage, you have several choices for receiving the funds:

  • Lump Sum: You can receive a one-time, tax-free lump sum payment, which can be used for various purposes, such as paying off existing mortgages, covering medical expenses, or making home improvements.

  • Line of Credit: You can establish a line of credit that grows over time, providing you with flexibility to access funds when needed. The unused portion of the line of credit also grows, offering potential financial security in the future.

  • Monthly Payments: You can opt for monthly payments, providing a steady stream of income throughout your retirement.

  • Combination: You can combine these disbursement options to meet your unique financial goals.

2. No Monthly Mortgage Payments: One of the most attractive aspects of a reverse mortgage is that you're not required to make monthly mortgage payments. Instead, the loan balance increases over time as interest accrues.

3. Repayment: The loan becomes due when you move out of the home permanently, sell the property, or pass away. At that point, the loan is typically repaid from the sale proceeds of the home. If the home's value exceeds the loan balance, the remaining equity goes to you or your heirs.

Tax Implications of a Reverse Mortgage

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Reverse mortgages are generally considered loan advances and, as such, are not considered taxable income. This means you won't owe income tax on the funds you receive from a reverse mortgage.

However, it's crucial to be aware of potential implications related to other aspects of your finances, such as Medicaid eligibility, and to consult with a tax professional to understand any specific impacts on your overall financial situation.

A reverse mortgage can be a valuable tool for retirement planning, offering financial flexibility, tax-free income, and the ability to stay in your home. To make the most of this financial option, it's essential to work with a reputable reverse mortgage specialist like Larry Keen, who can provide personalized guidance tailored to your unique needs and goals.


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