Are you comfortable with your investment strategies? Are you prepared to live on a budget? Have you saved enough? If not, it may be worth looking into a reverse mortgage.
Many retirees are finding they can take advantage of a reverse mortgage as a financial planning tool. They choose a reverse mortgage to:
As you can see, a reverse mortgage does not have to be a last resort option. It's in your best interest to see if a reverse mortgage makes sense for your retirement goals.
As mentioned earlier, one of the key benefits of a reverse mortgage is the ability to open a line of credit.
Professor Wade Pfau published a study in the Journal of Financial Planning about opening a reverse mortgage line of credit early in retirement. He suggested the homeowner delay using it until after the investment portfolio is depleted. This strategy allows the credit line to grow over a longer period of time before it is ultimately used, which provides for more income.
In another study (Journal of Financial Planning), researchers Barry H. Sacks, J.D., Ph.D., and Stephen R. Sacks, Ph.D., found that coordinating a line of credit with spending down liquid assets was an alternative to taking out the reverse mortgage. They found that accessing the line of credit in years when the market has a negative return is a better option than selling assets during a market decline to meet living expenses.
Taking these research findings into consideration, you'll see there are many ways to use a reverse mortgage to make retirement savings last longer.
According to HUD Secretary Ben Carson, changes were needed to put the HECM (reverse mortgage) program on a more sustainable footing so that it can remain a resource for senior borrowers. Not long after that statement was released (October 2017), upfront HECM mortgage insurance premiums were increased for certain borrowers, putting rates more in line with the rates of traditional mortgages. Principal limit factors were also changed, impacting the amount of home equity available for homeowners to tap (pending their age). These changes allow seniors to safely tap into home equity and to be financially prepared to age in place.
As the government continues to strengthen rules and regulations, reverse mortgages should be top of mind when retirement planning. Let's not forget that property values and home equity continue to be on the rise. That said, reverse mortgages are certainly an option that deserves further discussion.
If you're interested in remaining at home, mortgage free, and want to learn more about reverse mortgage benefits — give one of our salary-based mortgage consultants a call.
These materials are not from HUD or FHA and were not approved by HUD or a government agency.