Once considered a last-resort income source, the reverse mortgage has become an effective and reliable tool in retirement planning for older homeowners looking for financial peace of mind.
As a form of home equity loan, the reverse mortgage allows you the opportunity to eliminate your monthly mortgage payments. The loan is repaid once the last surviving borrower passes away or moves to a different home. This flexibility combined with recent changes to regulations makes this financial option one of the best ways to tap into alternative sources of income after you retire.
With so many methods of accessing reverse mortgages, let's look at just three ways you can use this borrowing option in your retirement plan.
1. Reverse Mortgages Can Be Emergency Funds
Perhaps the most traditional use for a reverse mortgage is as a line of credit, which you can access as you need it. If there is enough equity in your home after paying off your current mortgage (if any), you’ll have the option to access your equity as a line of credit. This is one of the best ways to get a reverse mortgage because you act as your own bank, accessing your home equity on demand as you need it.
2. Reverse Mortgages Can Protect Investments
Investments are a crucial aspect of your long-term retirement strategy. Unfortunately, in a down market, your cash flow and portfolio might struggle to survive without additional help. Using incoming funds from your reverse mortgage, you can protect your investments until the market starts to thrive again.
A reverse mortgage can significantly reduce the impact of an unpredictable market on your investment portfolio, so you won't have to sell assets for a loss. This gives you plenty of additional time for the market to recover so your portfolio can rebuild.
At the same time, any of the remaining credit in your portfolio will continue to grow, increasing your borrowing power and enhancing your credit rating. This means that if you do need to access an alternative form of lending in the future, you might not struggle as much in getting approval for your applications.
3. Reverse Mortgages Allow You to Access Full Social Security Benefits
A reverse mortgage could provide you with the additional income you need to defer tapping into your social security benefits until your 70th birthday, or as long as possible.
Many financial experts recommend delaying the application for your social security benefits until you've reached the latest possible retirement age. Doing this will allow you to access anywhere up to 132% of your primary insurance amount (PIA), and means you’ll have more money to live on for the remainder of your retirement. Delaying your claim will also ensure that your spouse would receive the highest benefit available if you were to pass away. This can provide additional security for your loved ones.
Of course, delaying access to social security benefits can be difficult. There are bills to pay and living expenses to think about, which many can't afford without the help of a regular income. A reverse mortgage loan can be the answer to this problem, giving you the additional resources you need, fast.
Using a reverse mortgage as a way of delaying social security payments is a strategy that's seen some controversy in the past. The Consumer Financial Protection Bureau’s report on social security suggested that the loan could be more expensive than homeowners expect. However, further reports have commented on the inaccuracy of that announcement, noting that the document doesn't show an accurate insight into what the reverse mortgage is capable of. Of course you should always discuss with your tax/investment advisor.
Planning Your Retirement with a Reverse Mortgage
Retirement planning is different for every individual. The best way to make sure that you're prepared for the future is to start strategizing early — with the help of a Certified Reverse Mortgage Professional (CRMP) or a financial planner.
The more support you have from the specialists, the more confident you'll be in your decision to use methods like the reverse mortgage loan to support your income. Contact ARAMCO and schedule an appointment with one of our Certified Reverse Mortgage Professionals to see how this financial solution could change the way you plan your retirement.