Did you know you can use your home to help pay for your retirement needs? For many seniors, their house is their biggest asset. If you’re at least 62 years old and own your own home, you can use a reverse mortgage to convert this asset into much-needed cash.
With a reverse mortgage, the lender makes loan advances to you which don’t have to be repaid until your death. Repayment of the loan and accrued interest also come due if you sell the house or move, but you won’t have to repay more than your home is worth. Depending on the type of reverse mortgage you apply for, the proceeds may be taken out in a lump-sum, in monthly payments, or made available as needed through a line of credit.
The amount of the loan you’ll be eligible for depends on several factors, including interest rates, your age, and your home’s value. The older you are, the less accrued interest is likely to build up while the loan is outstanding, so the lender can grant a higher loan. Finally, the more your home is worth, the higher the potential loan amount can be.
The main drawbacks to reverse mortgages include the relatively high loan costs and the effect such a mortgage might have on your estate plans. Your beneficiaries will have to either sell your home to repay the loan or come up with the money from other sources.
Reverse mortgages can be a needed resource in paying for in-home long-term care costs, home upkeep, and other retirement needs. I only mention this here because it’s a topic many people ask about. I don’t recommend a reverse mortgage to everyone; however, in certain circumstances it can be the key to solving a financial problem.
In our planning, sometimes a reverse mortgage is what saves the day. The cash we pull out can be used to generate a monthly income stream for the rest of your life. Another approach is to use the cash to fund a permanent life insurance policy with a special long-term care rider. Enough life insurance is purchased to replace the value of the home, which would have otherwise been inherited by your children mortgage-free.
You can read more on this in Chapter 6 of my book, Before It’s Too Late.
– Montgomery Taylor, CPA, CFP