Blog content updated on 11/29/21
Reverse mortgages allow homeowners age 62 or older—who own their home outright, or who have a small mortgage balance—to convert the equity in their primary residence into a liquid, tax-free asset. This Investment News gallery shares nine surprising ways a reverse mortgage can be used to boost your financial fitness in retirement. Learn about using this often-overlooked retirement income tool in ways that you may not have thought of before.
How can you use the money you get from a reverse mortgage?
The simple answer is: any way you wish. However, the best way is to have a retirement funding strategy in place, taking into account all of the income sources you have—and use the reverse mortgage proceeds as a helpful part of it. Your financial advisor can help you create a plan that works for situation to help you meet your goals for retirement.
The Investment News feature lists surprising ways to use a reverse mortgage. But what are some more common uses? Here’s a short list.
• Pay bills and other debts. Using the extra money you get every month from a reverse mortgage can help you reduce your debt, ease your interest burden—and have fewer financial worries. It can be used to help cover everyday expenses, pay bills, or lower your credit card balances.
• Help offset the rising cost of healthcare. Co-pays, deductibles, prescriptions…it all adds up very quickly. Even if you have good healthcare coverage, there are still out-of-pocket costs that can eat up a sizable portion of your monthly budget. Having more cash on hand will help you avoid dipping into your savings to cover it.
• Remain in your home longer. Many seniors prefer to “age in place” rather than downsizing to a smaller home or moving to a senior community—but often, repairs or upgrades are necessary to make it practical to meet your changing needs. You can use reverse mortgage funds to make these renovations happen so that you can stay in the home you love.
• Have a plan in place for future needs. With a reverse mortgage, you can establish a line of credit to protect against unexpected expenses, or help pay for long-term care. This financial “safety net” can help provide invaluable peace-of-mind today, and financial protection in the future.
• Lower your taxable income. Withdrawals from 401(k) or other retirement plans can be taxable. You can replace this money with income tax-free2 reverse mortgage proceeds. This not only reduces your tax burden, but also leaves your retirement assets to grow, and helps you avoid depleting them too early in retirement.
• Get a feeling of satisfaction that money can’t buy. For many older adults, nothing is more important than their families. You could use the proceeds from a reverse mortgage to help one of your children make a down payment on their first home, or help pay for a grandchild’s college education.
Today’s reverse mortgages give you options.
Home Equity Conversion Mortgages (HECMs)—commonly known as reverse mortgages—have come a long way from the days when they were considered a sort of financial “last resort” for people who had run out of money in retirement.
In fact, financial experts and advisors have found that a reverse mortgage can be an important part of an overall retirement funding strategy—to avoid ever running out of retirement money in the first place.
Choose where to redirect the funds when you pay off your current mortgage.
When you take out a reverse mortgage loan, the funds are first used to pay off your existing mortgage, if any. This in itself helps increase your cash flow, because the new reverse mortgage doesn’t require monthly mortgage payments.1 You can take the money you had been using to make those payments, and use it for some other purpose.
Choose how to receive the proceeds from your monthly mortgage.
Once your existing mortgage is paid off, you have choices as to how you take the remaining equity that’s available to you:
• Take it as a lump sum to use however you’d like.
• Receive monthly payments—for a set length of time, or for as long as you live in the home.
• Create a line of credit whose unused portion grows over time, so it’s there when you need it.
• Combine any or all of these options into a custom funding plan for retirement.
What could you do if you had extra cash every month? The experts at Longbridge Financial can help you understand your options and decide if a reverse mortgage is right for you.
To learn more about a Longbridge reverse mortgage, 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 Investment News feature, click here.
- 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.