Why You May Want to Consider a Reverse Mortgage
If you’re like many older Americans, you’re probably working hard to pay off your mortgage before you retire. While this is a laudable goal, you should also keep in mind that money in your home is not money you can easily access when you need it.
Unfortunately, we feel that too many people prioritize paying off their mortgage over saving for retirement. When you think about it, this doesn’t make a lot of sense.
After all, if your mortgage is paid off, it is true that you won’t have a mortgage payment; however, you will also lose the tax advantages of having a mortgage, and will still have to make property tax payments, as well as cover the expenses of maintaining your home. If you’ve put most of your hard-earned savings towards paying off your mortgage, how will you cover these (and other) costs during retirement?
A 2015 report by the Motley Fool found that 77% of the net worth of Americans age 65-69 was tied up in their homes!
This unfortunate truth has led to a resurgence in the popularity of reverse mortgages. Once considered a poor financial strategy, reverse mortgages can be an important piece of your retirement income puzzle – if used correctly – especially if you intend to stay in your current home during your retirement years.
A reverse mortgage allows you to begin taking monthly payments from your home equity – instead of making mortgage payments. There are a few different ways that you can choose to take payments, as this article explains.
Although you will need to pay closing costs on the reverse mortgage (typically between $2,000 and $4,000), in most cases, these can be covered by the new loan if you do not wish to pay them out-of-pocket.
Reverse mortgages are not right for everyone, but they can be a great tool to help you pay for some of your retirement needs, especially if much of your wealth is tied up in your home equity, and you don’t have many other sources of retirement income.
A reverse mortgage may be right for you if:
- You are at least 62 years old
- You intend to keep living in your home
- You have paid off all or most of your current mortgage, and you need supplemental retirement income
- You will be able to pay your property taxes and maintain the home
- You accept the fact that your heirs will need to find a way to pay off or sell the home upon your death
Reverse mortgages can be complex, and it is important that you understand all of the benefits and drawbacks before you proceed with taking one. Be sure to consult with a qualified financial advisor first, and shop around to make sure you’re getting the best rate.
Need help with retirement income planning? Contact us to discuss your options!