How can you know whether a reverse mortgage is right for you? Under which financial circumstances will a reverse mortgage benefit you the most? Although everyone’s individual situation is unique, the following scenarios highlight some of the most common reasons why many people choose to get a reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM). As long as you are 62 years of age or older and own your home, you may be qualified to receive a reverse mortgage and benefit from the following things it offers.
You Want an Extra Safety Net
By choosing a variable rate reverse mortgage, you can access your available funds at any time while also allowing them the potential to grow. As long as you have funds in the line of credit, it will have the opportunity to grow in value over time. This fund is frequently used as an extra emergency fund that may help to cover for sudden costs such as medical bills.
You Want to Eliminate Your Existing Mortgage
If you’re struggling under the weight of oppressive monthly mortgage payments, a reverse mortgage might be exactly what you need to alleviate this burden. By getting a reverse mortgage, you will actually be able to eliminate your existing mortgage completely. Because reverse mortgages do not require monthly payments either, you may be able to breathe a little easier without the stress of mortgage payments. However, do keep in mind that even with a reverse mortgage, you will still be obligated to keep up with property taxes, homeowners insurance, and maintenance expenses.
You Want to Access Your Home Equity Immediately
In general, baby boomers have pooled much of their earnings into their homes. This has led to the emerging financial phenomenon of being “house-rich and cash poor.” In other words, many seniors have aggressively paid off their mortgages in order to own their homes free and clear. However, without making use of a reverse mortgage or other type of home equity loan, that money is inaccessible unless you decide to sell the home entirely. But, thanks to a reverse mortgage, you may be able to continue living in your home while still accessing that home equity.
You Want to Buy a New Home
Using the HECM for Purchase, you could buy a new home with a reverse mortgage. Although you will have to come to the table with a larger down payment, you will never have to make monthly payments as long as you live in that home. (Though you still pay property taxes and homeowners insurance). If you’re looking to downsize, buy your dream home, or move closer to family or warmer climates, the HECM for Purchase may be just right for you.
You Want to Diversify Your Assets
If you have a wide assortment of other investments, adding a reverse mortgage to that existing list may be your opportunity to significantly boost your retirement income. For example, let’s say that you have a solid portfolio, but it’s been struggling in recent times. Perhaps you’ve had to withdraw from it in order to manage unforeseen difficulties – or, worse yet, maybe you’ve needed to draw principal when the market is taking a turn for the worse. In either case, getting a reverse mortgage might help provide that extra layer of stability that you need to leave your investments untouched. When there is still potential for your investments to rebound and return to a strong position, getting a reverse mortgage may be just what you need to maximize your overall earnings from investing.
As you learn more about personal finance and the possible benefits of acquiring a reverse mortgage, it is also important to understand that this is a complicated financial tool that is not intended for everyone. We recommend that all prospective borrowers learn as much as they can about their options and, preferably, speak with a financial advisor before committing to a major, life-changing decision.