Reverse mortgages aren’t, by all means, right for every retiree. But for many, the tool can offer added cash-flow, lower monthly costs and a lighter mental load, among other things.
The loan products have gotten some heat in years past, but thanks to increased regulation and a little more understanding of reverse mortgages themselves, they’ve morphed into a powerful financial tool that, when utilized and managed properly, can help retired adults live out their lives comfortably and in the home they know and love.
Specifically, here are the major benefits that retirees can expect with a reverse mortgage:
You can choose to receive your reverse mortgage proceeds as a fixed income every month, as periodic advances through a line of credit or as a lump sum. Whichever route you choose, it improves cash flow and eases your financial burden.
Reverse mortgages allow you to completely eliminate your mortgage payments and, subsequently, lower your monthly household costs. Since retirees typically have less income coming in than they may have before, this can help alleviate much financial stress month over month. It can also help stretch existing retirement savings further.
You never know when an unforeseen emergency or medical condition may come up, nor when one will require hefty funds to cover. A reverse mortgage offers you a safety net of sorts, giving you funds to pull from when and where you need them.
With a reverse mortgage, you retain the title to your home and can stay in the property as long as you like. You just have to keep it maintained per FHA regulations, as well as pay your property taxes and insurance, and you can live out your life in the home you’ve become accustomed to.
A reverse mortgage is essentially a line of credit, with your home as collateral. If you don’t use that credit all at once, the balance will accrue interest, giving you even more to pull from down the line. This can help protect you if your existing retirement savings run out ahead of schedule.
There’s nothing that says your reverse mortgage funds must be used for basics like food, utilities or health care. Reverse mortgages come with no restrictions, so use the money as you see fit — on travel, your grandchild’s college tuition or just a rainy day fund.
Your heirs also have more options once you pass on. Depending on their financial situation, they can choose to sell your property, repay the loan and keep the proceeds, or they can keep the home, repaying any balance left on reverse mortgage, up to 95% of the loan. They can also choose to disinvolve completely from the transaction and let the lender handle selling the house and repaying the loan.
Reverse mortgages can offer significant benefits for retirees and their loved one, but they’re not for everyone. Before moving forward, read up on the pros and cons of these loans, and make sure you know the costs and responsibilities you’d have as a borrower.
If, after careful analysis, a reverse mortgage seems like the right choice for you — or you’d like more personalized, professional advice — get in touch with a SnapFi advisor. We’re happy to help guide the way.