Dollars & Sense: How to Access the Equity in Your Home

The Paseo Financial Group

Congratulations! You have worked hard your entire life and have finally reached retirement. After years of paying down your mortgage, the bulk of your wealth now rests in one main asset: your home. These homeowners are often described as someone who is “equity-rich.” For senior homeowners, an important question eventually arises: how do you go about using the equity in your home and turning it into cash instead?

There are different answers to the question of how to get equity out of your home for the purpose of cash conversion. Some will choose to borrow against home equity by taking out a second mortgage, also known as a home equity loan (HEL). Others will choose a similar method and opt for a home equity line of credit (HELOC) instead. However, both these options require one thing that proves financially difficult for those who are already concerned with expenses: a required monthly mortgage payment. Borrowing home equity under a HELOC or HEL will always require payback of the loan in the form of a monthly payment. And most importantly you have to qualify for the monthly mortgage payment.

Fortunately, there is a third option that does not require a monthly mortgage payment. Government-insured reverse mortgages, also known as a home equity conversion mortgage (HECM), are quickly becoming the top choice for equity-rich senior homeowners interested in taking equity out of their home.

Reverse mortgages are loans that allow you to borrow against home equity without being required to pay a monthly mortgage payment. Borrowers remain responsible for only paying property taxes, homeowner’s insurance, and for home maintenance. Instead, some of the equity in your home is first used to pay off any existing mortgages, and the remaining loan amount is converted to non-taxed cash that you may receive in a lump sum, a monthly disbursement, or a line of credit. Meanwhile, you may continue to live in the comfort of your home. The loan becomes due and payable if the borrower moves away, passes, or fails to comply with loan terms such as neglecting to pay taxes and insurance.

You may use your proceeds in almost any manner you would like. Some borrowers use their proceeds to completely pay off all credit cards or other bills they may have. This then frees up the cash that would have normally gone to paying these debts to be used for other living expenses.

Other borrowers use their proceeds as a line of credit, using home equity as a strategic financial retirement tool to reserve a line of credit that grows automatically over time. Interest is not charged until the credit line is tapped, and it is not incurred on the unused portion of funds. Another option for using home equity is to receive it as a monthly disbursement and use it to supplement existing income for daily expenses.

Tapping into your home equity with a reverse mortgage could improve your lifestyle and fund the retirement you have always wanted. To learn how to qualify, how the loan could benefit you, and more detailed information, request free reverse mortgage information from Melanie Sedam at The Home Loan Pros. Melanie can be reached at 520-829-5219, #2.