Plain and simple, a reverse mortgage is for gaining access to the equity tied up in the home. While it is similar to a refinance, unlike a refinance, the reverse mortgage does not require monthly payments. In fact, you do not need to pay back a reverse mortgage until it comes due. This happens when you move out, sell the home, pass away, or fail to uphold the financial obligations of the loan, including paying property taxes, homeowners insurance, and home maintenance costs.
Gaining access to home equity can open your retirement up to new opportunities. Thus, a reverse mortgage is also for:
Monthly Cash Flow Savings
A reverse mortgage first pays off your existing mortgage, if you have one. Without a required mortgage payment, you’ll have that money to save or use however you like. For example, if your mortgage payment is usually $800 per month and you no longer need to make that payment, your cash flow savings would be $800 each month. In one year, that could amount to $9,600. Remember, you are still responsible for paying your property taxes, homeowners insurance, and home maintenance costs – which are not included in this calculation.
Extra Money in Retirement
There are many reasons people may need extra money in retirement. The money you get from a reverse mortgage can be used however you want. Some use the money for immediate needs, including home improvements, debt consolidation, or travel. Others use the money for future expenses, like unexpected costs or big purchases or as a safety net in case the housing market declines.
The reverse mortgage line of credit can be used as an effective tool in retirement planning. The funds from the loan can be used to live off while allowing other assets to grow in value. Or, they can be saved as an emergency fund. Any money left in the line of credit will grow in value over time. Some use this advantage to their benefit by getting a reverse mortgage when they don’t need the money right away and letting it grow, so they have more money to access later on.
Peace of Mind
A reverse mortgage can offer peace of mind because it can provide financial stability. Those who are worried they don’t have enough saved for retirement may find peace in knowing they have an extra source of money or a newly established emergency fund. Others who are burdened by a mortgage or a number of different debts may be able to breathe easier. While a reverse mortgage is more than a loan of last resort, it can also help people stay in their homes and avoid foreclosure.
A New Home
Did you know you can purchase a home with a reverse mortgage and not have to make a monthly payment as long as you live there? While you are still responsible for paying property taxes, homeowners insurance, and home maintenance costs, a reverse mortgage for purchase can help you move closer to your family or move to warmer climates. It can also help you downsize or move into a home that better suits your physical needs. Keep in mind, a substantial down payment is required.
Everyone’s situation is different. The reverse mortgage provides for a number of different financial goals and needs. If you would like more information on how the reverse mortgage could work for you, please give a licensed specialist a call. We also recommend speaking to a financial advisor.