When retirement is far off in the distance, it’s easy to imagine long lazy days in a warm climate without a care in the world. However, when retirement is within ten or twenty years, reality sets in. For people who have not saved enough to fully fund their retirement, a reverse mortgage may be necessary.
A reverse mortgage can serve as both a retirement tool and provide a senior with a degree of financial liquidity and flexibility. Here’s how it works: you convert a percentage of your home's equity into tax-free cash, as a line of credit, a lump sum, a monthly payment, or a combination of these.
A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity you built up over years of making mortgage payments, is then paid to you.
A recent article in The New Mexican asks simply, “Have you saved enough money?” When you think about a reverse mortgage, you need to do so methodically and make certain that you understand the different choices available to you.
Unlike a regular mortgage that reduces over time, since you’re making monthly principal and interest payments, a reverse mortgage gets greater. The reason is you’re being charged interest and mortgage insurance (HUD – FHA insured loan) on your reverse mortgage’s outstanding balance.
You can elect to make a monthly payment on a reverse mortgage, but most folks don’t. They want to stay in their homes and they don’t want to make principal and interest payments anymore.
The realities are that the 65-plus population in the US is growing at a rate of 10,000 to 11,000 daily, and our life expectancy has also increased. As a result, we need to find a solution to this new reality. Some are considering working longer and some will try to save more of their income. But for many, these options are not feasible.
If you work with an estate-planning attorney, she or he may have you look at using your reverse mortgage for portfolio coordination, spending home equity first to leverage your portfolio’s upside potential, or as a Social Security delay bridge.
Discuss the pitfalls and benefits of a reverse mortgage with an experienced estate planning attorney to learn if this makes sense for your retirement funding. Perhaps you will still be able to enjoy those lazy days in the sun!
Reference: The New Mexican (March 4, 2018) “Have you saved enough money?”