Using Reverse Mortgages as a Financial Tool

by Banks
Reverse Mortgage Tool

For many retirees, retirement is like a breath of fresh air.  For the first time, work obligations have ended and you are finally free to spend more time with your family, to enjoy your favorite hobbies, and maybe to simply relax.  Perhaps as you lounge in your yard enjoying a cold beverage, you are pleased at what obligations you no longer have to worry about, but realize your finances is not one of them. With bills still to be paid, you understand that you may need more than your retirement savings to continue this comfortable lifestyle. Looking upon the home that you have spent the last 30 years investing in, you know that one of the most powerful financial opportunities you have is to access funds from your home equity in order to help fund your retirement.

Financial Tool Options

Many retirees have long understood the power that comes with home equity.  Homeowners spend their working years investing in their home, and as their equity grows, so does their financial security. By the time senior homeowners reach retirement, their home is often one of the biggest assets they have, and they then have the resources to convert their hard earned equity into cash.  Therefore, finding the best financial tool to access home equity is essential when planning for the future. 

Traditionally, there were two popular ways to access home equity to convert into cash:  selling the home or assuming a second mortgage.  However, selling the home meant that retirees could no longer live in the home they had spent their life building.  And assuming a second mortgage meant being tied down once again to paying a monthly mortgage payment.  Retirees, many of whom are on a fixed income, wanted a different option where they could access their home equity without the drawbacks of traditional tools. 

The Reverse Mortgage Loan

Fortunately, in the early 1960's, a new loan was created that fulfilled this need.  The reverse mortgage loan promised borrowers a way to access their home equity as cash, continue to live in their home, and defer repayment in order to avoid monthly mortgage payments.  Because of these unique features, this loan developed into one of the most popular financial tools available to senior homeowners.   And naturally, with so many attractive features, borrowers found that they had some questions about this loan. 

Frequently Asked Questions

Who is a reverse mortgage meant for?

The reverse mortgage loan was designed to help senior homeowners who are at least 62 years old age in the comfort of their home.  Senior homeowners who desire to live in their home and have no plans to reside elsewhere are most benefitted by this loan.  In addition, borrowers who have homes that are free and clear or nearly paid off are typically able to convert the most cash from their home equity.

Even though there are no required monthly mortgage payments, borrowers are still required to pay their property taxes and insurance, as well as keep the home properly maintained in order to avoid foreclosure. This means that borrowers who have a good history of keeping up with these expenses may be good candidates for this loan.

How can a reverse mortgage help me financially?

There are a multitude of ways past borrowers have used this versatile loan.  With a reverse mortgage, you may be able to do any of the following:

·      Pay off an existing mortgage, thus eliminating monthly mortgage payments.

·      Pay off credit card or medical bills.

·      Afford needed medical procedures and treatments.

·      Afford your prescription medications.

·      Supplement a fixed retirement income, such as social security or pensions.

·      Increase cash flow to use on everyday expenses.

·      Buy a more fitting home using the Reverse Mortgage for Purchase loan type.

·      Use reverse mortgage funds as a strategy to:

o   increase payouts by delaying social security disbursements.

o   give retirement assets time to grow.

o   protect your portfolio performance in a down market.

Is it a requirement that I consult with a Certified Financial Planner or Certified Public Accountant in order to do a reverse mortgage?

Although it is not a requirement that you must consult with these two particular professionals, it is recommended so you can get a clearer picture of your entire financial profile.  There is, however, one consultation required during the process: a reverse mortgage counseling session with an agency approved by the Department of Housing and Urban Development (HUD).  These reverse mortgage counselors are there to help potential borrowers understand all the benefits as well as the risks involved when deciding to get a reverse mortgage loan.      

Paying extra attention to financial matters in retirement can help ensure that your future is well-funded and comfortable. As a financial tool, the reverse mortgage loan is undoubtedly an attractive option for senior homeowners who want to access their home equity. Contact a reputable reverse mortgage lender and speak to a licensed professional to gather all the information you may need about this loan. With a strategic plan in place, as well as the right financial tool to implement it, you are not far from a comfortably stable retirement. 

Sources:

"Featured Article:  7 Ways to Use a Reverse Mortgage as a Financial Planning Tool."  www.AAG.com.  NP.  ND.  Web.  12 August 2015.  https://www.aag.com/news/featured-article-7-ways-to-use-a-reverse-mortgage-as-a-financial-planning-tool

"The History of the Reverse Mortgage."  www.AAG.com.  NP.  ND.  Web.  8 June 2015.  https://www.aag.com/news/history-reverse-mortgage

"Learn More About: Reverse Mortgage Counseling."  www.AAG.com.  NP.  ND.  Web.  12 August 2015.  https://www.aag.com/news/reverse-mortgage-counseling

Lim, Alberta.  "What Seniors Should Know About Reverse Mortgages."  GriswoldHomeCare.com.  23 July 2015.  Griswold Home Care.  Web.  12 August 2015.  http://www.griswoldhomecare.com/blog/what-seniors-should-know-about-reverse-mortgages/

Lim, Alberta.  "Debunking Myths about Reverse Mortgages."  Equities.com.  18 June 2015.  NP.  Web.  12 August 2015.  http://www.equities.com/editors-desk/personal-finance/real-estate/debunking-myths-about-reverse-mortgages