In simple terms, a reverse mortgage allows you to access a percentage of the equity in your home. The money you receive goes towards paying off your current mortgage first (if you have one),* and then any additional money you receive can be used at your discretion. Because your mortgage is paid off with a reverse mortgage,* you will notice a number of benefits.
More Money Each Month
Without a monthly mortgage payment each month, you immediately gain financial flexibility. For example, let’s say your monthly payment was $1,000. After just 12 months, you will have saved $12,000 in cash flow savings** that would have gone to paying your mortgage. After five years, you will save $60,000 in cash flow savings. And after 10 years you will save a total of $120,000! In cash flow savings. Think about how you can use that money instead. You could make some necessary home improvements or upgrades. You could buy a new car. You could visit out of state friends and family. You can pay off your credit card debt or medical bills. The possibilities are endless.
At the end of the day, life is full of surprises. You will never be able to predict or expect what will happen. One day you may lose your job or encounter health problems. Both of these situations can drain your savings account, make it hard to pay your mortgage payment, and you may be forced to lose your home entirely. With a reverse mortgage you can feel secure in your home. Although a reverse mortgage doesn’t guarantee you will keep your home if you experience a hardship it reduces the risk considerably because you don’t need to worry about trying to make a mortgage payment as you’re only required to pay taxes, insurance, and the maintenance on your home.
Peace of Mind
Knowing you own your home and you no longer have to make monthly mortgage payments, you can feel at ease. You still have the option to make payments if you’d like; however, it’s not required. It’s one less thing you have to remember and your life can become less stressful with one less payment.
Protect Against Market Fluctuation
The housing market will fluctuate, it’s inevitable. But every once in a while, as we learned in 2008, it could plummet. In this instance, you could owe more on your mortgage than the home is worth. However, with a reverse mortgage, or non-recourse loan, when the loan comes due you will never owe more than the value of your home.
Save Even More
Instead of spending your proceeds after your mortgage is paid off (if you have one) you could use a reverse mortgage line of credit. This product allows your money to grow over time if left untouched. You will be able to enhance your retirement plan and create a safety net for the future if you run into unexpected costs. This could maximize the amount of money you are able to obtain with the reverse mortgage.
* Homeowner is still responsible for taxes, insurance, and property maintenance.
** This is a hypothetical example to demonstrate the projected calculation based on a $1000 per month payment. This is not a complete financial analysis. It is purely speculative and only takes into consideration your monthly mortgage payment multiplied by the number of months in the given time period. It does not take into account such financial items as inflation, equity changes, mortgage type, and present value of the dollar.