Outdated stereotypes of the reverse mortgage portray it as a loan of last resort. But, thanks to recent changes and government regulations, the Reverse Mortgage Line of Credit (RMLOC) has demonstrated its value as a flexible and stable tool for retirement. One major advantage of the RMLOC is its capacity for long term growth and improved financial security. This line of credit will grow according to an adjustable rate, allowing you to potentially accumulate a considerable nest egg to save for a rainy day or use as a you see fit.
The Line of Credit in Retirement
As more and more financial analysts, economists, and seniors begin to utilize the line of credit to bolster existing retirement plans, new financial strategies have emerged around this unique loan. One popular way to make use of a reverse mortgage is to take the money as a lump sum or choose to receive monthly disbursements that allow seniors to pay for living expenses. While using the line of credit to sustain a current living situation, seniors can wait to draw on other assets, allowing those other investments and benefits to have time to grow before using them. For example, you could supplement your living expenses with a line of credit, which may enable you to wait before withdrawing from your Social Security benefits – thus allowing those benefits to increase in value over time.
Alternatively, another popular strategy is to open a line of credit, then refrain from withdrawing the money. As the unused funds lie dormant, they gradually increase at a compounding rate – meaning that you’ll gain more money by waiting for the funds to grow. This amount of money may not be affected by shifting home values and, if given enough time, it could even grow to exceed the value of your home. This is why homeowners who get a reverse mortgage as soon as they reach age 62 could be at an advantage to gain more money over time.
Versatility and Stability
The reverse mortgage boasts a versatility rarely seen in the financial world. Although the RMLOC is often compared to a traditional Home Equity Line of Credit (HELOC), the reverse mortgage also allows for greater payment flexibility. Both the RMLOC and the HELOC use your home’s equity to let you borrow money; but with a HELOC, you will still have to make monthly payments akin to a traditional mortgage. With a reverse mortgage line of credit, you can pay your standard monthly mortgage if you prefer, but you could also eliminate these payments completely.*
Speaking of monthly payments, you could even collect your reverse mortgage proceeds through a monthly tenure plan. With a sufficiently large line of credit, you could take a monthly distribution to supplement your current income and still have the bulk of the line of credit available as a safety net. These funds may even be able to continue growing.
Public perception of the reverse mortgage has gradually improved as seniors come to terms with its beneficial qualities. For seniors that are eligible and want to utilize the equity wrapped up in their homes, the reverse mortgage may serve as a viable option. Plenty of retirees own a home, but they suffer from a lack of assets elsewhere. Instead of shrinking an already diminished nest egg, some homeowners can make use of a reverse mortgage line of credit as a safety net.
*Homeowner is still responsible for taxes, insurance, and property maintenance.