How Reverse Mortgage Can Affect Existing Benefits And Loans
One of the options to increase financial support when your reach retirement age is reverse mortgage. A reverse mortgage is also known as Home Equity Conversion Mortgage (HECM) that allows you to convert the value of your house to cash or funds that can be immediately available. This is a great addition to the other retirement alternatives for homeowners who would like to expand their funds for big-ticket expenses such as tours and home improvements.
A reverse mortgage loan does not need to be entirely for expensive activities. Most borrowers use the loan to fund their daily allowance to allow themselves to live more comfortably. It is an effective supplement to social security and Medicare benefits.
Some people have the notion that the reverse mortgage would affect their government-mandated benefits such as healthcare and social security. The fact is it does not affect the status of the membership you have with social security but it has minimum impact on Medicare. The amount of loan allotment you receive in a month will have an inversely proportional effect on your Medicare benefits. If the healthcare department is able to detect that you are receiving a large amount of money each month, then they may decrease your remuneration, or they may decline your Medicare application to accommodate other members.
What you can do though, to avoid this inconvenience is to avoid keeping the proceeds of your loan in the bank because it will be misconstrued as an asset. Remember that the point in taking out a reverse mortgage is to finance expenses, and it is expected that the monthly amortization be spent in the same calendar month. If the amount of money is spent immediately, it will not affect your Medicare standing.
If you plan to take out a reverse mortgage while there is an existing mortgage in your name, the reverse mortgage must be the primary loan. If the eligible amount of your home equity is sufficient to cover the outstanding loan, then you will be able to proceed with the reverse mortgage. It is also useful to note that the difference between your outstanding existing loan and the reverse mortgage proceeds must leave you with enough funds, otherwise, it can cost you a lot more.
Because even then, your whole reverse mortgage funds would have been used up. You will no longer receive monthly payments and if the left over amount is calculated to be very little, you may find yourself in a difficult financial fix in the future. It is also possible to use the entire loan amount to pay off the existing debt and if insufficient, you may use some of your personal savings to add up to it.
Although it is possible, it is advised not to rely on reverse mortgage to pay off outstanding debts if you can find other sources of funds such as retirement accounts and investments. Reverse mortgage will be so much more effective for actual expenses rather than debt payment because of the ceiling of the amount you can borrow.
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