Seniors in the United States are sitting on a whopping $7.19 trillion in housing wealth. Although it wasn’t part of balanced retirement plan, reverse mortgage could be an effective way of funding retirement. Tapping home equity can help generate income and hedge against possible correction in the housing sector.
When looking for additional source of retirement income, some retirees may opt to downsize, relocate to an area with lower living costs, or use assets from their retirement account. However, many do not want to put up their houses in the market nor do they want to sell their investments.
One great solution is reverse mortgage, which provides homeowners who are at least 62 years the ability to tap into their home equity so they can meet their retirement goals.
Understanding Reverse Mortgage
Before, reverse mortgages were considered as the last resort. But it’s different nowadays. Financial advisers and homeowners can consider a reverse mortgage as an excellent part of holistic retirement plan.
Although the situation and needs of people differ, one of the primary drivers behind a reverse mortgage loan is to give an annuity kind of payment or to get rid of a current mortgage payment, which could boost the cash flow in the household. This extra cash flow could be used to cover expenses and other long term requirements and to help keep the retirement income at a certain level wherein assets won’t be depleted.
Aside from that, a reverse mortgage loan could offer an alternative source of revenue whenever stocks are underperforming so people do not have to sell the stock at lower values.
But you need to remember that reverse mortgage isn’t for everyone. There are some factors that need to be taken into account. One important consideration includes the length of time the borrower plans to stay in the house. Although many retirees are thinking of aging in place, one out of three baby boomers have plans of moving at some point during their retirement years while others are considering renting instead of owning a house or staying at an assisted living facility. For these kinds of situations, shorter term funding requirements may be met more efficiently with conventional financing like HELOCs because of the costs of taking out a reverse mortgage.
The interest rates on reverse mortgage loans are similar to a traditional mortgage however, there might be significant closing costs because of the upfront Federal Housing Administration (FHA) mortgage insurance premiums. Such costs are about 2% of the overall home value. The insurance is exactly what makes a few reverse features possible such as having no interest payments as long as you are still living in your home or that the heirs or the borrower will not owe more than the home’s value. If all these benefits are not are not enough for the borrower, then traditional financing without the insurance premium is a more sensible option.
Call Reverse Mortgage Specialist if you need more details about reverse mortgage.
Reverse Mortgage Specialist
1293 Professional Drive, Suite 204
Myrtle Beach, SC 29577