Use Refinancing your Home Generate Extra Cash Over 50

You can refinance your own home when you do not have any other options of getting money using the refinance and you can generate extra cash when your age is above 50 years.When deciding whether to refinance your mortgage, you also want to look realistically at how long you plan to stay in the home. Closing costs usually total several thousand dollars, so it ’ s important
figure how long it would take you to break even.

Many people forget is that refinancing also extends the term of the loan. If you ’ ve been making payments on your 30 - year fixed mortgage for 15 years, you only had another 15 to go. If you refinance for another 30 year mortgage, you can get a lower monthly payment but you may well have more total interest expense over the years because you ’ ve extended the term.

So what some people do is refinance from a 30 year to a 15 year mortgage. But, of course, choosing a shorter term means a higher monthly payment. So you need to calculate if changing the terms makes financial sense. For those who are retired, or are about to retire, is to refinance not necessarily to lock in lower rates but to re - amortize the loan. If 15 years remain on your loan, refinancing to a 30 year loan could cut your payments substantially and, thus, increase your disposable income.

Keep in mind that interest on refinancing or home - equity loans is deductible as home - mortgage interest only on principal amounts. Using a reverse mortgage to finance the “ good life ” can result in consuming much, if not all, of your home equity. If you want to take a dream vacation or get cash to invest, a reverse mortgage is a bad idea. That ’ s because if you need cash for future needs, such as long - term care or medical major expenses, you could fi nd yourself out of options. What ’ s more, these loans are very expensive and the amount you owe grows every month.

Reverse mortgages were once largely the last resort for impoverished oldsters who had no other income. But this kind of mortgage has become so popular because it allows seniors to turn their home equity into tax - free cash. With a reverse mortgage, you can increase your income and continue to live in your present home for life. Many homeowners get interested in reverse mortgages so they can stay in their own homes. But perhaps the best way to evaluate a reverse mortgage is to compare it to what you ’ d get by selling your home and using the proceeds to buy or rent a new place.

It ’ s called a reverse mortgage because the principal balance gets larger, not smaller, over time, and because the bank pays you; you don ’ t pay the bank. Only homeowners age 62 or older can take out a reverse mortgage. The younger you are when you take out a reverse mortgage, the more the compound interest will grow — and thus, the more you ’ ll owe. Generally, the older you are, the more your home is worth, and the lower interest rates are, the more cash you can get. Many seniors don ’ t qualify for home - equity loans or home - equity lines of credit because of low income.

And in any case, such loans require a monthly repayment, so they don ’ t solve cash - fl ow problems. A reverse mortgage generally must be a “ first ” mortgage, meaning it must be the primary debt against your home. So if you already have a mortgage, you generally must either pay it off before you get the reverse mortgage or pay it off with the money you get from the reverse mortgage.

The interest on a reverse mortgage accrues, and the loan doesn ’ t need to be repaid until the borrower dies or moves out of the home.The money can be used for any purpose, and the proceeds can usually come in the form of a monthly check, a lump sum, a line of credit, or some combination of these. The payout doesn ’ t affect your Social Security payments. And you don ’ t need to repay the loan as long as you live in the home. The loan is usually repaid from the proceeds from the sale of the house after you move or die.The size of the loan depends in part on the specific reverse - mortgage program you select and also on the kind of cash advances you choose.

Generally, figure on getting access to no more than about 30 percent to 50 percent of the equity in your house because lenders don ’ t want to be left holding the bag if house values plummet. But if the market value of your home is well above the average house price in your area, you might be able to get a larger loan from a private lender.Ideally, you want the biggest loan at the lowest cost. But the two don ’ t always go hand in hand, and their complex features can sometimes make them difficult to evaluate.

Reverse mortgages can be an expensive way to generate income compared to, say, trading down to a smaller home. Loan fees and closing costs are higher than for traditional mortgages, often running into the five figures. However, these may be wrapped into the loan amount, meaning that there ’ s little upfront cost. Because the loan is payable at death, heirs may feel shortchanged, although they can take out a conventional mortgage to pay off the reverse mortgage. Reverse mortgages make the most sense if you ’ re looking for an ongoing source of income through retirement or you need a large lump sum. It doesn ’ t make much sense if you might move in a few years or just need cash for some relatively small bills. That ’ s because the stiff up - front expenses — such as origination fees, closing costs, and mortgage insurance — can drive the effective short - term loan rate skyward.

Also, note that a reverse mortgage doesn ’ t reduce your housing costs unless it ’ s used to pay off your existing mortgage. With a reverse mortgage, you remain the owner of your home and are still responsible for paying property taxes and homeowners insurance, and for making property repairs.While the payouts are tax - free, the accrued loan interest isn ’ t deductible until or if the borrower starts paying off the loan. Each payment that you receive from the lender reduces your home equity — and increases the amount of principal and interest that you
owe on the mortgage. This means that the owner will net less when the home is eventually sold, unless the value of the home appreciates more rapidly than the rise in the reverse - mortgage balance.

On the other hand, if you face a serious retirement - income shortage, this reduction in equity — really a lessening of your heirs ’ potential inheritance — may be better than lowering your standard of living. So for an increasing number of retirees, adding to their cash fl ow trumps the downsides of reverse mortgages. It can be especially helpful in the early years of retirement when you can travel and get out more.

But remember, the more of your equity you use now, the less you will have later when you may need it more. If you ’ re not facing a financial emergency now, consider postponing a reverse mortgage. Be disciplined about how you use any retirement windfall, whether it ’ s from a reverse mortgage or from some other equity - tapping technique. The Securities and Exchange Commission has come out strongly against individuals borrowing against their homes to buy investments such as stocks,and the commission is especially critical of borrowing to buy variable annuities.

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