Some people assume that reverse mortgages are only useful as a last resort. But, this way of using this loan doesn’t represent the only way to take advantage of this loan. Some can get the most benefit out of a reverse mortgage by getting one sooner rather than later. What makes the reverse mortgage an especially valuable financial tool is not just that it can help you out in a pinch – in fact, it can arguably be more beneficial when you don’t need to use the money you receive immediately.
The Reverse Mortgage as a Retirement Tool
More and more analysts and financial advisors are now recommending the reverse mortgage as a retirement tool for seniors as young as 62. Specifically, many advisors are recommending the reverse mortgage line of credit as a strategic mechanism to build a stronger nest egg in retirement. So, what makes the line of credit such an attractive financial tool?
One of the major benefits of the line of credit is flexibility. By choosing to get this type of reverse mortgage, you could take the money as a lump sum, receive monthly disbursements, or wait and allow your available pool of money in the line of credit to grow over time.
It is this latter benefit that convinces many financial advisors to recommend the reverse mortgage to eligible seniors. If you chose to open a line of credit without withdrawing any money, these unused funds could increase over time, therefore granting you much more available money in the future. Furthermore, this money is not based on changing home values. Rather, it is based on an assortment of factors that combine to form a variable growth rate.
Calculating this rate can seem a bit complicated at first, but it’s actually rather straightforward – your interest rate (that comes from the current index and margin values) is combined with the Mortgage Insurance Premium (MIP) thereby forming an overall growth rate. Because the values that create this rate can change over time, the growth rate is variable as well. Though this rate fluctuates over the course of the loan’s duration, it has the power to rival the rate at which the home appreciates over time.
Some borrowers may be able to see an average growth rate around 5%-10%, which can have monumental effects over a few decades. In fact, it’s even possible for some lines of credit to surpass the value of a borrower’s home after many years! This potential for growth is one of the primary reasons that financial advisors are taking a closer look at the reverse mortgage as a valuable retirement tool.
Understanding the Advantages of Getting a Reverse Mortgage Early
Even if you choose not to take advantage of the line of credit, there are still a number of reasons why getting a reverse mortgage sooner rather than later is especially beneficial. For example, many people choose to get a reverse mortgage in order to further diversify or bolster their existing investments. By adding a reverse mortgage to your list of assets in retirement, you may be able to substantially boost your overall portfolio. For instance, if you have a portfolio that is doing well, it would be a shame to withdraw from it before the right time strikes. Perhaps you’ve even needed to withdraw from it in the past in order to handle an unexpected financial difficulty. However, by getting a reverse mortgage, you may be able to reach that extra level of stability that will allow you to leave your investments unaffected until the time is right. After all, if there is potential for your investments to rebound and reach a strong position once again, getting a reverse mortgage may be all you need to cover other expenses and keep those investments on the right track.
Choosing to get a reverse mortgage earlier simply means that you will be ready and have the available funds in order to handle this kind of situation. Similarly, getting a reverse mortgage at an earlier age and taking advantage of the line of credit is beneficial when dealing with other expensive surprises like medical bills, car repairs, or other emergency situations.
Ultimately, what makes the reverse mortgage such a potent financial tool is its incredible flexibility. With a reverse mortgage line of credit, you could defer usage until later when the line of credit has grown. While learning more about personal finance and the benefits that many borrowers will be able to see from a reverse mortgage, it’s also important to remember that it is a complicated financial tool that may not be suitable for everyone. Before making any life-changing financial adjustments, we recommend that all prospective borrowers learn what they can about the reverse mortgage and their other options and speak with a financial advisor before making a serious commitment.