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When Does It Make Sense to Use a Reverse Mortgage in Retirement?

Posted by The Aramco Group on Wed, May 16, 2018 @ 09:05 AM

A couple speaks with their financial advisor

Many homeowners look forward to the day when they can make their final mortgage payment and own their home outright. But, during retirement, it can often help to tap into your home equity, rather than leave it sitting untouched.

A reverse mortgage is a type of loan designed for homeowners over the age of 62. Insured by the federal housing administration, it transfers equity into cash — without the stress of monthly mortgage payments. You can receive your equity either as a line of credit or a lump sum, so you can spend your money in a way that suits your retired lifestyle.

While a reverse mortgage may not be the right option for all senior homeowners, below we’ve outlined circumstances where it can make sense to use this financial vehicle to your advantage.

1. You Need Some Budget Breathing Room

Once you’re retired, you live on a fixed income which has to cover your day-to-day expenses. When unexpected medical bills and significant home improvements suddenly come your way, it can be difficult to find the extra financial cushion you need to cover these costs.

Reverse mortgages can free up your budget by eliminating your monthly mortgage payments (of course, you still must make your property tax and insurance payments). What’s more, because reverse mortgages provide you with a lump sum, you have money to use as and when you need it. This gives you peace of mind that you can deal with any future surprises.

2. You Have an Investment Portfolio

If you have a portfolio of investments that's not yet performing as well as it should, or there are downward fluctuations in the real estate and stock markets, a reverse mortgage can help.

Because this financial solution gives you access to your home equity, you have money to spend during down-market years. This means you won’t be forced to sell your investments before you’re ready, allowing you to build up a stronger retirement portfolio and strategically sell when the market is favorable for you.

3. You Want to Pay off Your Debt

Nobody wants to spend their golden years constantly worrying about debt. Unfortunately, if you’re finding it hard to sustain normal living standards on your fixed income, you may struggle to get rid of leftover debt at the same time.

A reverse mortgage can help you consolidate some of the high-interest debts that might leave a burden on your family after you pass away. This saves money on loan payments, and ensures you have access to enough cash to enjoy your retirement instead of focusing on how to make ends meet.

4. You Want to Upgrade Your Home

If you’re hoping to leave your home to your family, you may want to address any problems on your property to ensure that it’s in top condition. A reverse mortgage can help you make any necessary changes without accessing a high-interest loan.

Even if you don't want to leave your home to anyone, upgrading certain aspects of your property could be a great way to give yourself a better quality of life during retirement. From renovating your kitchen and bathroom to installing a chair lift, you can make your home easier to get around and more enjoyable to live in with a reverse mortgage.

Is a Reverse Mortgage Right for You?

If you’re still not sure whether a reverse mortgage is right for you, ask yourself the following questions:

  • Would it be helpful for me to pocket my monthly mortgage payments?
  • Would it benefit me to access the equity in my home without selling it?
  • Do I have medical expenses or debts I need to pay off?
  • Would I feel financially secure with more cash in my budget?
  • Would I feel better if I leave my family with a non-recourse loan, rather than excess debt?

If you answered yes to any of these questions, then it may be helpful to explore your options with a reverse mortgage.

Contact ARAMCO to schedule an appointment with one of our Certified Reverse Mortgage Professionals (CRMP), and find out whether this financial solution could work for you.

Topics: Reverse Mortgage, Retirement