When it comes to the important topic of retirement planning, a reverse mortgage can be a valuable option you may want to consider to help you live the comfortable lifestyle you’ve always anticipated during your golden years. Though there are a variety of alternative ways to supplement your income, a reverse mortgage can be a useful, tax free way of utilizing the equity in your home as part of your retirement strategy.
While a regular mortgage requires you to make monthly payments to your lender, a reverse mortgage is money you receive from your lender without having to pay it back as long as you live in your home. Unlike taking on a part-time job or maximizing social security benefits by delaying benefits, a reverse mortgage can be obtained without the burden of any income restrictions or high (re)payments. As long as you are 62 years of age or older, a reverse mortgage is a conventional method used to employ your home’s equity in order to pay off your current mortgage, make home improvements or compensate various healthcare expenses.
Although a reverse mortgage comes without any income restrictions there are three types to consider depending on your circumstantial means.
- Single Purpose
- Federally Insured
A single purpose reverse mortgage is usually the least expensive option offered by your state/local government, and numerous non-profit organizations. Retirees with low-moderate incomes usually qualify for this type of loan for the single purpose of paying taxes, making home repairs, etc. The loan is then repaid when you die or sell your home.
Federally insured reverse mortgages also known as HECM’s (Home Equity Conversion Mortgage) backed by the U.S Department of Housing & Urban Development along with private loans (propriety) tend to be a little more expensive than your typical home loan. While these kinds of loans can be used for any purpose and don’t come with any associated income or medical requirements, it’s important to weigh the pros and cons. Make it a priority to meet with an experienced counselor from a government approved housing agency (HUD) to help you make the right decision based on what works best for you.
If you owe less on your home, the more money you can qualify for. How much you should borrow depends on a couple various factors:
- Home value
- Interest rates
- Type of loan chosen
Make sure to shop around. A retirement calculator is a good way to learn more and compare your various loan options. Whereas supplementing your income through a reverse mortgage does NOT adversely affect your Social Security or Medicare benefits, it’s important to do your research and make sure you understand all the various fees and costs associated with a reverse mortgage.
HECM payment options include:
- Term – Fixed monthly cash advantages set for a specific length of time.
- Tenure – Fixed monthly cash advantages set for as long as you live in your home.
- Line of credit – Cash advantages utilized by a line of credit.
- Combo – Monthly payments + line of credit.
Although a reverse mortgage can be a strategic part of your retirement plan, make sure you find the right financial advisor/counselor that can answer all your questions and walk you through the process. Know your goals, and understand the repercussions. Keep in mind, lenders can foreclose on you if you fail to maintain your home or pay property taxes/homeowner insurance premiums.