When it comes to talking with prospective borrowers and those considering a reverse mortgage, one of the top questions we receive is, “How can I use reverse mortgage funds?” The answer is simple—reverse mortgage funds can be used however you wish. After all, a reverse mortgage taps into your home equity.
While many homeowners opt for a reverse mortgage to eliminate debt and keep more money on hand for everyday bills and expenses, it doesn’t have to stop there. Check out these 10 ways you can leverage reverse mortgage proceeds.
1. Make “Aging in Place” Modifications to Your Home
If you wish to stay in your home well into retirement years, you’re in good company. Research shows that nearly 90% of people over the age of 65 want to stay in their homes for as long as possible1—indicative of the “aging in place” movement gaining traction with senior homeowners. But the reality is that most of today’s homes are not designed to accommodate the needs of aging homeowners. Fortunately, by making some modifications around the house, you can implement necessary changes to make your home well-suited for retirement years.
From simple tasks such as installing better lighting and rearranging furniture, to more comprehensive modifications like installing ramps and stairlifts or widening doorways, there are plenty of proactive measures you can take throughout your home. Check out our Aging in Place Checklist for a complete list.
2. Eliminate or Reduce Credit Card Balances and Other Debts
What’s the largest source of household debt in the US? You may have guessed it—mortgages. In fact, as of June 2020, home mortgage debt sat at $9.78 trillion, representing 68% of household debt3. If you’re looking to eliminate your monthly mortgage payment and are age 62 or older, tapping into your home equity with a Home Equity Conversion Mortgage (HECM) —or reverse mortgage—could be just the solution. If you have an existing mortgage on your home, the loan proceeds from the reverse mortgage are first used to pay off that loan. Since no monthly mortgage payments are required2 on the reverse mortgage, you can eliminate that monthly expense and keep more cash to use as you see fit, like paying off other debts.
When paying off other debts, remember to start with high-interest debt first, and don’t forget to maintain your emergency or “rainy day” fund. Having this financial cushion in place is especially important when allocating more of your monthly income toward paying off your debts.
3. Set Aside Funds for Healthcare Expenses
When it comes to retirement, healthcare costs are a top concern among Americans, and understandably so – the price tag of future care for a healthy 65-year-old couple now hovers around $400,0004. Having a plan in place to manage these expenses well into the future is a vital component of smart financial planning. While taking advantage of Medicare services is key, you’ll likely also need some form of supplemental coverage or a prescription drug plan.
If you could use another source of cash flow to help fund healthcare expenses, a reverse mortgage could be just the solution. By tapping into your home equity, you’ll access proceeds to use as you wish, such as helping to manage healthcare expenses, setting aside funds to cover long-term care needs, or even just building up your nest egg to cover increasing insurance rates.
4. Establish a Line of Credit for Emergencies, Occasional Expenses, or a Longer Retirement
Need some money now, but want to leave some for future expenses? Establishing a line of credit can help you achieve just that. With a reverse mortgage line of credit, you may have access to some funds immediately at closing while leaving some available for use later in retirement. These remaining funds not taken at the time of closing continue to grow in a line of credit for future use. With 40% of Americans reporting that they do not have the money to cover an unexpected $400 expense5, these funds could be especially beneficial in the event of large occasional expenses, emergencies, or even a delay in income.
Starting this line of credit also acts as a safety net during times of uncertainty, as recently seen during the COVID-19 pandemic. Since a reverse mortgage line of credit provides access to an additional source of funds that doesn’t depend on the stock market, you can avoid making taxable withdrawals from your 401(k) or other retirement plans and instead leverage your income tax-free reverse mortgage proceeds6, giving your portfolio some time to recover.
For those with higher home values, our proprietary Platinum Line of Credit reverse mortgage provides more income tax-free cash6 than a HECM, and more flexibility than a standard Home Equity Line of Credit (HELOC). Learn more about Platinum Line of Credit here.
5. Help a Family Member with Major Expenses
College tuition, a down payment on a home, a wedding, a new car for the family: these are just a few of the many large expenses you’ve likely seen your family members face. While it’s only natural to want to step in and help them, it’s important to refrain from doing so at your own financial expense.
If you want to help your family members fund some of these significant expenses, a reverse mortgage could help. And if your home value is $450,000 or higher, Longbridge Platinum could help you tap into even more proceeds—up to $4 million.
6. Defer Social Security Benefits
Perhaps one of the most important decisions you’ll face in retirement is when to start receiving those long-awaited Social Security benefits. While one school of thought is to start collecting as soon as you become eligible, it’s important to note the clear benefits to deferring Social Security as well. According to the Social Security Administration, you’ll receive 100% of your designated monthly benefits if you wait to start receiving until you’ve reached the full retirement age of 66. However, deferring just one extra year to age 67 means you’ll receive 108% of the monthly benefits since you delayed them 12 months. What’s more, if you wait until the maximum age of 70 to start receiving, you’ll collect 132% of the monthly benefits since you delayed them by 48 months.
If you’re planning to defer and maximize your Social Security benefits, but could use some additional cash now, a reverse mortgage could help. By tapping into the equity in your home and using it strategically for everyday expenses, you’ll be able to delay Social Security and maximize your benefits in the long term.
7. Purchase a New Home
Thinking about moving? Whether your ideal retirement home is smaller, is in a warmer climate, requires minimal maintenance, or is closer to loved ones, the financial implications of making a move are often a lot to comprehend, especially on a fixed income.
The HECM for Purchase is simply a reverse mortgage where the loan proceeds are used to purchase a new home—all with optional monthly mortgage payments2. Using proceeds from the sale of your current home or cash on hand, you make the initial down payment and cover the closing costs. From there, the balance of the purchase is covered by your reverse mortgage loan proceeds, and any remaining funds can be used however you choose. Learn more about how you can buy a house with a reverse mortgage here.
8. Spend More Time Doing the Things You Love
With retirement comes more time for the things you love – your hobbies, passions, and favorite pastimes. Whether it’s crafting, cooking, taking exercise classes, sampling local restaurants, or even just taking the grandkids out for ice cream, we all have things we love to do. However, it’s no secret that these things often come at a cost. Tapping into your home equity can provide an avenue to fund these activities, so you can spend less time counting cash and more time doing the things you truly care about.
9. Take the Trip of a Lifetime
Like to travel? If you’ve been planning your dream vacation or exploration for years, the good news is that you finally have the time to take it. Of course, it’s no secret that travelling—especially internationally—can come with a hefty price tag. Why not tap into your home equity? Whether your dream vacation is relaxing somewhere tropical and warm, taking in the rich history of foreign cities, or hopping in the car and taking a scenic road trip, reverse mortgage funds can make it all possible.
10. Fund Home Improvement Projects
When it comes to homeownership, it’s no secret that there is always something around the house to be done. Beyond the standard repairs and upkeeping, think about the home improvement projects that could turn your house into your retirement dream home.
Like to cook for the family? Consider a kitchen renovation. Want to entertain loved ones and host summer barbecues? Construct a pool, patio, or deck in your yard. Want to spend more time crafting? Turn that spare bedroom into your creative oasis. Passionate about fitness? Convert your basement or garage into your own personal gym space. The possibilities are endless, and regardless of the project, a reverse mortgage could provide the funds to bring your home improvement visions to life.
And there you have it—10 ways for you to leverage your reverse mortgage proceeds. But keep in mind, these ideas are just the beginning. Since cash from a reverse mortgage can be used for whatever you wish, the possibilities are endless.
At Longbridge Financial, we know how important your home equity is—that’s why we’re committed to making the process all about you. Our reverse mortgage professionals get to know you, and take the time to understand your unique situation, so we can offer solutions that are best tailored to your needs. Plus, if we ever feel that a reverse mortgage isn’t right for you, we will tell you so. Not all lenders make that pledge.
- Real estate taxes, homeowners insurance, and property maintenance required.
- Consult a financial advisor and appropriate government agencies for any effect on taxes or government benefits.