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: your 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 accessing a portion of this equity with a reverse mortgage, you could supplement your retirement cash flow and unlock greater peace of mind for the road ahead.
However, during periods of high interest rates and market fluctuations, you might be understandably hesitant to take on new financial commitments. The good news is, there’s a silver lining for homeowners considering tapping into their home equity with a reverse mortgage…
A Look at the Bright Side
A reverse mortgage line of credit grows faster as interest rates increase.1,2 This means by setting one up earlier, your available credit can grow more quickly, if interest rates rise, over a longer period of time,2 ultimately resulting in greater funds available to you 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 meet your loan obligations, keeping current with property taxes, homeowners 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 today.
What Exactly is a Reverse Mortgage Line of Credit?
Reverse mortgages offer qualified homeowners 62 and over the flexibility of multiple ways to receive their funds, including a lump sum, monthly disbursements, a line of credit, or a combination of these options.1 The reverse mortgage line of credit offers access to a pool of funds that you can tap into as needed. Even better, the funds can be used however you wish—including to help navigate market volatility and the seemingly ever-increasing cost of living.
Another benefit of a reverse mortgage line of credit 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 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 you can leverage a line of credit.
- Making Home Modifications: 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 to 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 for aging in place, the cost of these projects can add up. For those on a fixed income (or those who simply don’t have thousands of dollars readily available), the line of credit is an invaluable financing option to help cover these projects.
- Covering Essential Bills: Another strategic use for the line of credit is to pay for homeowners insurance and property taxes—which is a key requirement of the reverse mortgage. A reverse mortgage 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.
- Building a “Rainy Day” Fund: A “rainy day” fund is a pool of savings set aside for occasional expenses that are bound to happen over time. These can be for the things that you don’t necessarily account for in your monthly budget but are likely to occur eventually. Setting funds aside now with a reverse mortgage line of credit can be a game changer down the line.
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. Once the funds are in your bank account, they’re yours to spend.
Naturally, this may raise the question, “How will I know how much I have in my line of credit?” This is where the amortization table comes in!
Visualizing Your Line of Credit
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 your current age to 99. It’s especially useful for visualizing the compounding growth that comes with a line of credit.2 For example, an untapped 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 credit line 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 and goals. This versatility allows you to manage your finances effectively and access funds as circumstances require, providing greater 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 can 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 cashflow 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. While a financial advisor can discuss strategies for your specific circumstances, the optimal time for many to establish a 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.2 Taking action now means you’ll have a safety net in place to manage unforeseen costs down the line.
Taking the Next Step
Ready to enhance your retirement with a reverse mortgage line of credit? The first step is 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, 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. 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.