Now you might be fabulously broke and living in the city – who isn’t – but one thing is for sure, you aren’t getting any younger. As such, the specter of retirement looms on the horizon. For millions, the very thought fills them with dread. After all, they can barely make ends meet while they are working. So, how can they even afford to pay for, much less enjoy, retirement?
The answer might be simpler than you think especially if you own your home or condo – a reverse mortgage. While they have been around for nearly 50-years, reverse mortgages were often considered the last resort for anyone who didn’t have enough money for retirement.
Well, times they are a changing and this article will give you the lowdown on how a reverse mortgage can you enjoy retirement.
What is a Reverse Mortgage?
These loans were specially designed for homeowners over the age of 62 who want to tap into the equity they have built up in their home. While this might sound like a home equity loan, there is a twist – reverse mortgages do not require monthly payments.
That being said, these loans aren’t for everyone. To make the most of a reverse mortgage then your home either needs to be paid off or close to being paid off. You see, one part of a reverse mortgage is that the new loan will pay off your existing mortgage. As such, you don’t want to go through the process of getting a reverse mortgage only to hand over most of the money to the bank.
It used to be that financial planners were skeptical of reverse mortgages, but this is changing. The reason for this is that many Americans have been hit hard by the economic volatility of the past 20-years. It’s not that the economy has always been bad. In fact, when times were good, they were beyond fabulous. However, the dot-com and housing busts did cramp the style of a lot of people.
As such, reserve mortgages have become increasingly popular. One thing that helps this development is the fact that most of these loans are guaranteed by the Federal Housing Administration. This means that lenders must meet strict rules including providing certain protections.
How Can a Reverse Mortgage Help?
For starters, it’s extra cash and we can all use that. This extra money can help you to better coordinate spending and make sure that your nest eggs remain intact for longer. This will allow them to achieve even more returns – an important fact when we are all living longer.
Another way that a reverse mortgage can help is that it gives you access to the added cash you will need to pay for unexpected expenses, such as medical emergencies. In addition, reverse mortgages allow you to tap in your home equity without needed to pay capital gains taxes. Let’s face it, any option to get money that is tax-free – and legal – is fabulous! Though the interest accrual is not tax deductible.
One of the best ways to do this is by setting up your reverse mortgage as a standby line of credit. This means that you can tap into the equity you’ve built up as needed; it also means that the account will continue to grow as your home appreciates in value. So, it is basically an opportunity to print money.
If this sounds like something that might interest you then you might want to search out a local lender near you. This will give you an opportunity to learn more about their programs before deciding on whether to move forward or not.
Why Else Would You Want to Consider a Reverse Mortgage?
There are two potential reasons. First, getting a reverse mortgage can help you to put off Social Security. Why would you want to do this? Well, delaying Social Security until the age of 70 can increase your monthly benefit by 30% or more. This is a big deal and can add up to thousands of dollars per year if you play your cards right.
Another way that a reverse mortgage can help is that you can use the funds to help pay for the costs of converting your IRA as you will need to pay taxes on any funds you withdraw before the age of 70 ½.
There it is, enjoy your retirement without needing to worry about whether you will have enough money to pay for it.
