Have you ever wondered if a reverse mortgage is the right fit for your retirement? With over 1.3 million people having already secured a reverse mortgage to improve their financial flexibility,1 you can rest assured you’re not alone in wondering whether this financial tool is right for you.
Navigating finances in retirement can be daunting, especially as you transition from a steady income to relying on savings, investments, and pensions to sustain your lifestyle. Retirement planning is no longer a one-size-fits-all endeavor. With increased life expectancies, rising healthcare costs, and economic uncertainties, retirees today face complex challenges that require innovative approaches to financial management.
For some, and this may include you, the traditional retirement model of relying solely on savings and pensions may not suffice to maintain their desired quality of life. This is where a reverse mortgage could come into play, providing an alternative avenue to access funds and supplement retirement income. For many older Americans, the equity locked within their homes represents a significant but often untapped resource. Thankfully, a reverse mortgage offers a unique way to leverage your home equity in order to meet various financial goals – without the need to sell your home.
Reverse Mortgage Basics
Before we dive into the “ifs” that might make a reverse mortgage right for you, let’s briefly discuss what it is and how it works. A Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage, is a government-insured loan that allows homeowners aged 62 and older to tap into your home equity and use the funds however you wish, all without monthly mortgage payments. And it’s not too good to be true – as long as you keep up with your property taxes, insurance, and home maintenance, as you would with any mortgage, you have the option to never make a monthly mortgage payment for the life of your loan.
General qualifications for a reverse mortgage include being 62 or older, living in the home as your primary residence, and having sufficient equity in your home. And if you have an existing mortgage balance, that doesn’t disqualify you – it simply means funds from the reverse mortgage will first be used to pay off that remaining balance. Many people take out a reverse mortgage primarily for this purpose, to free themselves from the burden of their previous mortgage’s monthly payments.
The Big “Ifs”
Coming to this kind of financial decision is never easy. It’s important to take time to fully understand your own finances, the goals you have for yourself, and the lifestyle you hope to achieve during your golden years. It’s equally important to understand your options and look at the tools available. And while a reverse mortgage is just one financial tool, it’s one that was specifically designed to help older homeowners achieve greater financial stability during retirement.
So, let’s look at some “ifs” that may apply to your life and whether a reverse mortgage might make sense:
- IF you want to stay in your current home for the rest of your life, a reverse mortgage might make sense for you. Today, many retirees want to “age in place,” so they can remain in their homes and not have to move to a senior community, assisted living facility, or downsize to a smaller home. The funds you receive from a reverse mortgage can help make that goal possible! And as a reminder, when you have a reverse mortgage, you can continue to live in your home with no monthly mortgage payments!2
- IF you’d like to relocate and spend your retirement years elsewhere, a reverse mortgage may still make sense! We touched on using a reverse mortgage to stay in your home, but this versatile loan offers another option: purchasing a new home using a reverse mortgage. This is called a “Reverse for Purchase” and it’s a fantastic option that many people aren’t aware of – not even real estate agents! Maybe you’d like to move to a warmer climate, or closer to loved ones, or simply want to downsize or upsize to something that better suits your retirement lifestyle. Whatever the reason, a Reverse for Purchase can help you relocate to the home of your retirement dreams. With this option you can accomplish two goals with a single transaction – buying a new home while securing a reverse mortgage. Many people like this option because it can help save money by reducing closing costs since a single loan is taken out. This can also make the home buying process faster and easier, and, best of all, there are still no required monthly mortgage payments.2 Talk about a win-win!
- IF you want to improve your monthly cash flow, a reverse mortgage can help with that. Everyone could use a little more money every month. Because no monthly mortgage payments are required,2 you can choose to redirect the money you would have otherwise used to pay the mortgage toward other things—everyday expenses, bills, credit-card balances or other obligations.
- IF you worry about a lack of savings seeing you through your retirement years and you have significant equity built up in your home, a reverse might be the solution. It’s a known fact that a good chunk of Americans have insufficient retirement savings and, in addition to a lack of savings, many older adults are what some refer to as “house rich and cash poor.” It’s an old adage but it rings truer than ever – today, senior homeowners hold nearly $13 trillion in home equity!3 That’s a lot of wealth sitting in homes across the country. If you’re part of this “house rich” cohort, it may make sense to consider putting that equity to work for you with a reverse mortgage.
- IF you have major expenses on the horizon, a reverse could come in handy and ease the burden. Maybe you need a significant medical procedure or have a need for a home health aide, or perhaps you need to make much-needed repairs or modifications to your home so you can live more safely and comfortably. Big bills are never convenient, but with a reverse mortgage in place, they’re less to stress over. Reverse mortgage funds can provide the financial means for you to be better prepared for life’s unexpected moments – and expenses – all while remaining in your home. This can include covering the cost of long-term in-home care or making modifications around your home such as installing grab bars, ramps, or other features that enhance mobility and overall quality of life.
- IF you want to help your loved ones, funds from a reverse can be used however you’d like, and that includes using them to assist others. Many retirees plan to use money from a reverse mortgage to contribute to their grandkids’ college funds or their adult children’s down payments on their first home. It feels good to help those we hold dearest, and a reverse mortgage can help make that goal a reality.
- IF you want to delay taking Social Security disbursements, a reverse mortgage can provide cash flow to bridge the gap and help you wait it out. While the minimum age to start collecting is 62, waiting until the full retirement age of 66 or 67, or the maximum age of 70 could mean a greater payout. By using a reverse mortgage to cover everyday bills and expenses, you can have the financial flexibility to delay claiming your Social Security benefits early and receive the maximum benefit amount when the time comes. As always, it’s important to discuss any changes with a financial advisor and appropriate government agencies for any effect on your taxes or government benefits.
- IF you want to pay off your existing mortgage balance, that’s actually a requirement of the loan! If you’re burdened by an existing mortgage, a reverse mortgage will pay it off in full, freeing up more cash for you to use elsewhere, providing financial relief and reducing the risk of foreclosure if you’re struggling to cover monthly mortgage payments. As a reminder, a unique and wonderful feature of a reverse mortgage is that you aren’t required to make those monthly payments – what a relief.2
- IF you want a safety net for life’s unexpected costs, having a reverse mortgage in place can be a fantastic help. Life is unpredictable, and unexpected expenses can arise at any time. A reverse mortgage can serve as a financial safety net, allowing homeowners to access funds when needed for medical bills, home repairs, or other unforeseen circumstances.
- IF you want to spend more on entertainment and adventure without straining your financial resources, a reverse can help you live your golden years to their full potential. It’s no secret that the cost of living continues to rise, but that doesn’t mean our desire for fun has decreased. Keeping up with the increasing cost of entertainment options like movie and concert tickets or travel expenses can be challenging, especially during retirement. When adjusting to a fixed income, entertainment expenses are often some of the first ones cut from the budget. Thankfully, proceeds from a reverse mortgage can put flexibility back in your spending plan and allow you to still have the ability to make time for fun and travel.
We’ve covered a lot, but these are only a few of the reasons why getting a reverse mortgage might make sense for you. With that said, it’s important to note that while a reverse mortgage can be a valuable financial tool, it’s not a one-size-fits-all solution. It’s crucial to thoroughly understand the terms, costs, and potential risks associated with the loan. And seeking advice from trusted advisors and discussing your decision with your loved ones can provide additional perspectives to help ensure that you’re making a decision aligned with your overall financial goals.
Finding the Right Lender
Once you’ve made the decision to pursue a reverse mortgage, the next step is finding a lender and loan officer you can trust. Not all lenders are created equally, so doing your own research is important. At Longbridge, we offer something to all our customers called The Longbridge Commitment – a list of ways we make customer service our highest priority. We feel so strongly about going above and beyond to ensure our customers’ satisfaction that we put our list of these commitments in writing.
Whatever your decision, our team is here to help, and we’re happy to answer any questions you have regarding reverse mortgages and IF now may be the right time for you explore your options. To learn more, contact us today!
