In today’s unpredictable economy, financial security and smart planning are more crucial than ever, especially for retirees adjusting to life on a fixed or reduced income.
Fortunately, even if your retirement portfolio isn’t as robust as you’d like, there’s a valuable resource you might be overlooking: home equity. With today’s seniors accounting for record amounts of home equity, you may be surprised to see just how much wealth is built up in your home. By tapping into a portion of this equity with a Home Equity Conversion Mortgage (HECM), also known as a reverse mortgage, you could significantly supplement your retirement cash flow.
However, as interest rates have soared over recent years and market fluctuations have become the new norm, many are understandably hesitant to take on new financial commitments– particularly loans. Yet despite these factors, the current interest rate storm offers a silver lining for those considering tapping home equity…
A Look on the Brighter Side
Unlike traditional home equity lines of credit (HELOCs), a reverse mortgage line of credit grows1,2 faster as interest rates increase. This means that by setting one up earlier, your available credit will grow more quickly,2 ultimately resulting in greater funds available down the line. Better yet, monthly mortgage payments are optional on a reverse mortgage. You have the freedom to pay as little or as much as you want, as often as you’d like – as long as you stay current with property taxes, insurance, and home maintenance. And since reverse mortgage closing costs remain relatively stable, establishing a line of credit could be a financially savvy move both now and, in the future, especially if you own your home free and clear.
So, what exactly is a reverse mortgage line of credit?
A reverse mortgage line of credit is a flexible disbursement option that provides access to a pool of funds that you can tap into as needed. The funds can be used however you wish – including to help navigate market volatility and the increasing cost of living. Another benefit of the reverse mortgage line of credit option is that you only pay interest on the total balance of the money you use, which can help keep that loan balance low. For example, if you need $5,000 for a large or unforeseen expense like a new roof, you can access the funds quickly without borrowing or paying interest on more money than necessary—you would simply add the $5,000 to your balance of used funds and pay the interest on that amount. This flexibility is extremely valuable in preserving your finances and ensuring you have access to funds at times when you need them most.
How you can use it: savvy strategies
As noted earlier, a reverse mortgage line of credit monetizes your home equity – to be used as you wish. While the possibilities are virtually endless, there are several savvy ways we’ve seen homeowners leverage their line of credit.
As a homeowner, you know that there is always something to be done around the house – most of us have a growing list of ongoing maintenance tasks tend to. With this in mind, one of the most common ways homeowners utilize their line of credit is for home maintenance. Whether it’s a repair like a leaky roof or drafty window, or improvement projects like replacing railings or a fresh paint job, the cost of these projects can add up. For those on a fixed income (or those who don’t have thousands of dollars readily available), the line of credit is an invaluable financing option to cover these projects.
Another strategic use for the line of credit is to pay for insurance and property taxes – which is a key requirement of the reverse mortgage. As insurance rates continue to rise significantly, a line of credit could provide the funds to cover these expenses without straining other financial resources. Again, the money can be used however you wish – but earmarking some funds to keep up with essential bills can be a wise strategy.
These strategies highlight the flexible nature of a reverse mortgage line of credit and are just a few of the many ways you can use the money. Whether you choose to purchase a new vehicle, invest in home repairs, or simply keep proceeds on hand in a “rainy day fund” for emergencies, once the funds are in your bank account, they’re yours to spend. Naturally, this raises the question…
“How will I know how much I have in my line of credit?”
This is where the amortization table comes in! When you first explore the reverse mortgage program, your lender will provide you with an amortization table. Included in your quote package, this table shows how your loan balance changes over time, from current year to age 99. It’s especially useful for visualizing the compounding growth that comes with a line of credit.2 For example, a $100,000 line of credit could potentially double or quadruple over time.
With a clear, long-term view of the growth potential of your line of credit, the amortization table can help you make more informed decisions about managing your home equity and planning for the future. But it’s also important to note that these projections are based on current interest rates, which may fluctuate over time. As a reverse mortgage lender and servicer, Longbridge sends a monthly statement once your loan funds. This statement details your exact loan balance and available credit to the penny for the most accurate and up-to-date outlook.
This monthly servicing statement also contains a withdrawal form to request funds from your line of credit. Once you fill out and submit the form via email or fax, funds are usually transferred within five business days. And thanks to the flexibility of a line of credit, you can request money from your available line of credit whenever you need it. Whether it’s a one-time large withdrawal for tax payments at year-end or smaller, regular withdrawals throughout the year, the line of credit can be tailored to suit your financial needs. This versatility allows you to manage your finances effectively and access funds as circumstances require, providing financial peace of mind.
Harnessing the Power of Home®
In a world where traditional pensions are rare and economic volatility is a reality, financial preparedness is key. By establishing a reverse mortgage line of credit, you’ll unlock an additional financial resource to help fund your retirement lifestyle and associated expenses. It’s a customizable tool that you can use as needed, and close without penalty if your circumstances change. For couples nearing retirement, especially those relying on one income, a reverse mortgage can help protect against unexpected financial challenges. Whether you need to replace lost income or cover unforeseen expenses, having this additional financial resource can make all the difference.
When it comes to planning for your financial future, being proactive is key. This principle holds true in the realm of reverse mortgages. The optimal time to establish your line of credit is early—ideally before any financial need arises. By setting up your reverse mortgage line of credit sooner rather than later, you maximize its growth potential over time. Taking action now means you’ll have a safety net in place to manage emergency or unforeseen futures down the line.
Ready to enhance your retirement with a reverse mortgage line of credit? The first step is education – making sure you have all the information you need to make an informed decision. From how much you can receive in proceeds, to loan requirements, you likely have several questions when it comes to reverse mortgages. A knowledgeable reverse mortgage lender can answer these questions and more.
At Longbridge Financial, reverse mortgages are all we do. And we’re passionate about helping homeowners reshape their financial future by educating them on reverse mortgages – and helping them unlock the power of their homes.
We’re committed to providing you with the information you need to make an educated decision as to whether the reverse mortgage program is right for you and meets your needs. Our knowledgeable staff has years of experience and our loan officers are some of the best in the business. But don’t just take it from us – check out our excellent customer ratings on Trustpilot, an independent review site.
For more information or to learn more about the reverse mortgage line of credit, contact the Longbridge team today.
