Blog content updated on 11/6/2021
The common mantra in real estate has always been that the three most important factors in the price of a home are location, location, and location. While location is still an important consideration for older adult homeowners—especially if it means being closer to their families—the financial factors affecting homeowners approaching retirement age are not as simple anymore.
Jamie Hopkins, Associate Professor of Taxation and Co-Director of the American College’s New York Life Center for Retirement Income, takes a deep dive into this topic in a Forbes article that features insight from Chris Mayer, CEO of Longbridge Financial and Professor of Real Estate at Columbia University.
According to Mayer, “There is a lot of opportunity for older homeowners to be more strategic about their living situation and let home equity help cover their expenses in retirement.”
Discover the new mantra in retirement housing strategies.
Hopkins argues that there should be a new mantra for older adults making housing decisions: cash flow, cash flow, cash flow. “Cash flow is king in retirement,” he writes. “Without it, you cannot meet your retirement needs.”
And as Mayer explains, “Cash flow can be improved in three ways: moving to free up cash flow, restricting debt obligations, or supplementing retirement income by tapping into home equity through a reverse mortgage,” he says. Let’s take a closer look at all three.
With today’s historically low interest rates, one simple way to reduce monthly debt obligations is to simply refinance your existing mortgage at a lower rate or over a longer period of time, in order to lower the monthly mortgage payment—which, for many seniors, is their most burdensome financial debt. You could also pay down other debts with cash you do have available to lessen your interest load, or simply try to cut out expenses that aren’t absolutely necessary, such as entertainment or travel.
While these actions can certainly help reduce your debt load, some may involve lifestyle sacrifices you don’t wish to make, or dipping into invested assets you’ll need later on.
Moving to another home.
Another way to free up cash is through a move, the most common of which is downsizing to a smaller home. For seniors living in a home that’s become less of a fit for their needs as they age—or that has become too expensive to pay for and maintain—this is a viable option. A smaller, less expensive home can help reduce ongoing living expenses and free up home equity.
Another other way to use a move to improve finances is a relocation. Moving to a place with similar-sized homes in a less-expensive area, or to states that offer tax advantages for seniors, can help increase cash flow. But it’s important to consider all of the factors that go into the cost of living in a certain area to make sure it’s the right move—because once you make that decision, it’s difficult to reverse it and move back.
However, there is one kind of “reverse” that ticks a number of boxes for older adult homeowners looking to improve their cash flow in retirement.
Taking advantage of your home equity with a reverse mortgage.
So, what can you do if you don’t want to move? In fact, research indicates that 90% of Americans over the age of 65 want to remain in their homes for as long as possible.1 That brings us to the third strategy for increasing cash flow in retirement—one that was designed for exactly that purpose—a Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage.
It lets you convert the equity you’ve built in your home into cash you can use in any way you wish—including making repairs and upgrades that you need to make your home more suitable for your retirement years. It pays off your current mortgage without requiring any monthly mortgage payments2, and you can take the proceeds as a monthly payment, a lump sum of cash, line of credit or any combination of those.
This allows you to take the money you had been sinking into monthly mortgage payments and redistribute it to cover other costs; arrange a monthly payment to yourself to cover everyday living expenses; or open a line of credit as a sort of financial “safety net” for the future. In fact, there are many ways to use a reverse mortgage to help you increase your cash flow and live the retirement life you always imagined.
Wondering how much cash you could receive from a Longbridge Financial reverse mortgage? To learn more, call 855-523-4326 or fill out the form on this page to get a free info kit. There’s no cost and no obligation.
To read the full Forbes article, click here.
- Real estate taxes, homeowners insurance, and property maintenance required.