As reverse mortgages move into the mainstream, many people are catching on to the fact that they can be used as an option for older homeowners to tap into their home equity for extra cash flow.
Taken as a lump sum for home repairs, or as a monthly installment to help pay for day-to-day living expenses, reverse mortgages can help some people to improve their retirement picture.
But there are also some surprising ways borrowers are using reverse mortgages. From divorce to delaying Social Security benefits and protecting retirement investments, some borrowers are getting very creative with their reverse mortgage strategies.
Here are four surprising ways a reverse mortgage may be able to improve your retirement picture.
In a divorce.
There are a couple of ways that a reverse mortgage can help in the case of a divorce between people of the qualifying reverse mortgage age of 62. First, the reverse mortgage can be used by one spouse to keep the home, if he or she could not otherwise afford to maintain the monthly payments as a single person.
Second, a reverse mortgage for purchase could be used by one or both of the spouses to purchase a new home. A reverse mortgage for purchase is a special type of reverse mortgage that allows a borrower to get a reverse mortgage and buy a new home in a single transaction. This essentially prevents the borrower from having to pay two sets of closing costs, and it can be beneficial in that it eliminates mortgage payments for a borrower who may be downsizing or moving closer to family members in another part of the country.
To delay Social Security benefits.
The ins and outs of Social Security benefits are becoming more widely known, but retirees are often surprised to find what a substantial benefit they can achieve by delaying Social Security benefits beyond what the government deems the “full retirement age” based on the year when you were born. The difference can translate into hundreds of dollars a month, and tens of thousands of dollars over the years.
Some savvy retirees have done the math to determine that using home equity through a reverse mortgage can help them delay having to draw on their social security benefits. This strategy doesn’t work for everyone, but it’s worth discussing with a financial planner to determine if it might work for you.
To protect investments.
Given the recent market swings relating to energy prices and most recently, the decision of the United Kingdom to leave the European Union, many retirees are stressed to find their investment portfolios have lost value at a time when they need it most. While young investors can easily weather market swings, older investors don’t have the same luxury.
Rather than selling investments in a down market, some retirees are turning to reverse mortgages to help them “weather” market storms. This strategy usually involves taking a reverse mortgage as a line of credit, and tapping into it only as needed—instead of selling investments that can’t be regained.
The line of credit can be repaid at any time, and it also increases in capacity when it is left unused. Retirement planners have found in their research that retirees are better off in almost all cases when this strategy is utilized. They’ve also found that taking a reverse mortgage as early as possible helps improve the financial outcomes for retirees under this strategy.
Many people understand how a reverse mortgage can be used to allow the borrower to remain in his or her home. But few realize that a special type of reverse mortgage can also be used to purchase a new one. The Home Equity Conversion Mortgage (HECM) for purchase is a reverse mortgage product that is designed to help people move into a home that is more equipped for aging—whether that means physical home features like single-story living, or relocating to be closer to family or care that is needed.
The reverse mortgage for purchase is like any reverse mortgage in that it allows qualifying homeowners to convert their home equity into proceeds. The benefit of the reverse mortgage for purchase is that it allows borrowers to buy a new home without having to make monthly mortgage payments.
If you have a question about how a reverse mortgage can help you in one of these ways, or simply to tap into your home equity in retirement, contact us for more information.
YouTube Video Tutorial: HECM Line of Credit Explained