The idea that reverse mortgages should only be considered as a last resort is no longer true today. In many, if not most cases, home equity is an underutilized retirement asset that can help people to stay and age in their homes.
How Does a Reverse Mortgage Work?
Reverse mortgages convert home equity from your primary residence into a usable resource. You must be 62 years of age to qualify. Reverse mortgages can be used for both purchases and as a source for cash. Unlike a traditional mortgage, monthly payments are not necessary. The funds borrowed and the interest are applied towards the equity in your home. Property taxes and property insurance must continue to be paid by the homeowner.
The two main purposes of a reverse mortgage are:
- To purchase a home or pay off an existing mortgage so that monthly mortgage payments are no longer necessary.
- Provide resources to satisfy other cash needs. A reverse mortgage credit line can help provide
bridge funds while delaying social security or while experiencing negative retirement account returns on investment portfolios, funding to pay taxes when converting a traditional IRA or 401K retirement account into a Roth IRA, a contingency for unexpected needs instead of raiding retirement accounts and/or a vehicle for deferred income
Example 1: Powerful Deferred Income Strategy
Assume a 62 year old homeowner with a home worth $280,000 and no mortgage. By taking a reverse mortgage credit line, this client has $148,000 available to them at the time of the credit line’s inception. If the credit line is left to grow(not drawn upon), after 10 years, the available proceeds available to the client will have grown to $252,805. By year 20, the credit line will have grown to $431,828. The homeowner will not be liable for more than the current appraised value of the home.
Example 2: Retired Couple Can Stay In Home
Assume a married couple. The husband is 62 and his wife is 58. They have a mortgage on their home of $140,000 and the home is worth $280,000. A reverse mortgage can be used to pay off the mortgage and eliminate the mortgage payment. The wife would not be part of the reverse mortgage, as she is under the age requirement, but would be able to stay in the home if the husband passed away.
These are two examples of how a reverse mortgage can help and be a part of your retirement plan.
If you have any questions, please give me a call.
Chris Rosner, Renaissance Lending, 480-227-6944, [email protected], NMLS# 181263 & 180251