Can your Real Estate Help you Retire?
Studies show that Baby Boomers are facing a financial shortfall when it comes to retirement. Many of them will bridge the gap by continuing to work, while others will tap into their biggest asset: their home. If you have a significant amount of home equity, yet find your savings account is rather thin, the answer could be a reverse mortgage: here’s why.
How Reverse Mortgages Work
With a reverse mortgage, you maintain ownership and occupancy of your home as normal. Your property is simply used as collateral against any equity you do tap into. The only difference is that you do not have to make monthly payments as you would when taking out a traditional mortgage. You can simply allow the amount of debt to increase until you pass away or move out, whichever comes first. The amount of debt you accrue may never exceed the amount of equity in your home, so there is no need to worry about passing on loan payments to your survivors.
Possible Uses for a Reverse Mortgage
Reverse mortgages are very flexible, allowing you to utilize your equity in a manner that best suits your needs. Some common ways in which retirees use reverse mortgages include:
- To help pay for unexpected expenses such as major home repairs
- Providing additional cash to supplement monthly living expenses
- Allowing for a line of credit that could be used as needed
Eliminates a Mortgage Payment
A common misconception about reverse mortgages is that you cannot currently have a house payment in order to quality. The fact is that many retirees “flip” their current mortgage into a reverse mortgage upon retirement. This eliminates the need for monthly payments, freeing up additional cash to meet other expenses. Of course, you could still make a mortgage payment each month as usual if you wanted to extend your benefits, but you would be under no obligation whatsoever to do so if you occasionally fell short.
The biggest benefit to a reverse mortgage is that it allows you to stay in your home. Perhaps you are emotionally attached to your house or look forward to passing it onto your children. A growing number of seniors these days also desire aging in place. Should you require renovations to do so, the funds from a reverse mortgage could ensure you are able to afford such a project.
Some other benefits of a reverse mortgage include:
- Making it possible to delay withdrawals from a 401(k), which often come with tax penalties
- Being able to stretch your retirement savings
- No risk of default, since no payments are required until you move out
- The funds you retain as a result of your reverse mortgage are completely tax free
You’ve spent years building up equity in your home, and that effort could very well pay off once you reach retirement age. If your retirement benefits are not quite what you had expected, you may want to consider using your home’s equity to enjoy the benefits of a reverse mortgage.