Coast River Business Journal

Have you ever asked yourself what the benefits are of owning your home, besides being the place you live, feel safe in, and the wonderful family memories it brings? Today, a good portion of retired Americans are living that dream in a home that is much larger and more valuable than the home they grew up in as a child.

Even if you have no mortgage on your home, along with home ownership comes the cost to maintain its upkeep and the expenses of property taxes. In addition, retirees are living longer and need to find income solutions that can provide a constant source of income to supplement their retirement and meet their expenses.

A "reverse mortgage" is a very good solution for many, since it creates monthly income and/or eliminates a monthly mortgage payments if you happen to have one. A reverse mortgage uses your home equity as collateral and defers the payment of the loan until you either sell the home or move from its location, generally one year after leaving the home. The youngest borrower in the home must be at least 62 years of age.

The balance along with the deferred interest is due at that time to the borrower or to his or her heirs. Like all loans, the lender is only entitled to the portion of the balance owed to them, not the entire equity as some might believe.

There are many features of a reverse mortgage and following are some ways it can be used as one of your best tools for retirement planning and income distribution planning:

1. The income that is generated is not taxable since it is considered a loan. This could allow you to reduce the amount from other resources for retirement such as retirement accounts that are fully taxable.

2. You can access the equity in a reverse mortgage by creating a monthly income for as long as a person is in the house, similar to a pension.

3. You can refinance your current mortgage and eliminate the monthly obligation all together.

4. You can combine items 2 and 3 as there are no income or credit scores to qualify for the loan.

Reverse mortgages are backed by the Federal Housing Administration (FHA) and also require strict HUD guidelines to be in compliance. For example, mortgage insurance is required. This is to protect the lender and borrower in the event that the loan becomes larger than the home value if deferred for a prolonged period of time.

Myth: I could owe more than the loan and the lender could come after my other assets. This is simply not true, this is what the insurance is for, to protect against the mortgage being greater than the value of the home.

Like all loans, it is not cost-free and it pays to get the facts and to educate yourself on the benefits, features and costs. A reverse mortgage is not a good solution if a person does not plan on staying in the home for at least three years.

One of the escalating costs facing retirees today is home health care and long-term care expenses – especially for those not covered by long-term care insurance or those that do not qualify due to health issues. A reverse mortgage allows you to "use your home to stay at home."