What’s the key to a secure retirement? It may be the one that opens your front door.
Times have changed for retirees. For many, the classic “three-legged stool” of retirement funding (Social Security, pensions, and savings) is no longer enough to pay for the kind of retirement lifestyle they’d like to live.
That’s why today, more financial experts and advisors are recommending that retirees consider accessing their home equity as another source of funds:
“Using a reverse mortgage to tap home equity is one of the most powerful options available to retirees today.”
—Alicia Munnell, Director, Center for Retirement Research, Boston College
What is a reverse mortgage? If you’re a homeowner age 62 and older, it’s a loan that allows you to tap into your home equity for needed cash—without having to make any monthly mortgage payments. All you have to do is continue to pay property taxes and homeowners insurance and keep the home in good repair according to FHA requirements. With a traditional mortgage, the homeowner pays down the debt over time. But with a reverse mortgage, the loan balance grows over time because the homeowner isn’t making monthly mortgage payments.
This useful financial tool offers some distinct advantages, including:
1. It can eliminate monthly mortgage payments and improve cash flow. Proceeds are first used to pay off any existing mortgage. And since a reverse mortgage doesn’t require monthly payments (the loan doesn’t come due until the last borrower leaves the home)¹, you can eliminate that expense and have more cash available each month.
2. The proceeds are tax-free² to use as you wish. You can take the remaining proceeds as a lump sum, monthly payments, a line of credit, or any combination. It’s up to you. You can use the money to pay bills, reduce personal debts, help with healthcare expenses, make home repairs, help family members, or any other purpose.
3. It can be used to buy a new home, without monthly mortgage payments. A Home Equity Conversion Mortgage (HECM) for Purchase is a type of reverse mortgage that allows you to buy a home that’s closer to family, more physically accessible, or better suited to your needs. And as long as you live in the home and meet the homeowner requirements above, you won’t have to make monthly payments on the house.
4. It can help preserve other sources of income. By using the proceeds of a reverse mortgage, you may be able to put off tapping into your 401(k), personal savings accounts, or investments—and delay taking Social Security payments, so you get the maximum benefit.
5. The value increases over time. Unlike a traditional mortgage, your reverse mortgage credit line can never be reduced: in fact, its value is guaranteed to increase over time—regardless of the loan balance or the home value.
Plus, as part of the program, every reverse mortgage borrower meets with an independent, third-party counselor—to make sure that they understand the features of the loan and their responsibilities, so they can make an informed decision about whether it’s right for them.
Getting started is simple. To find out if you qualify for a reverse mortgage program, and decide if it’s right for you, contact a trusted lender to explore your options. The experts at Longbridge Financial can answer your questions and help you make an informed choice.
To learn more, fill out the form to get a free information kit from Longbridge Financial.
1. Taxes and insurance must be paid, and the home must be maintained in accordance with the terms of the loan.
2. Consult a financial advisor and appropriate government agencies for any effect on taxes or government benefits.