Can A Reverse Mortgage Help Finance Retirement?
Posted by Richard on November 8, 2022
Yes. If you want to stay in your home and you need cash to pay ordinary living expenses, a Home Equity Conversion Mortgage (HECM) could be a good option.
The average retired person has a lot of money invested in their home. In fact, home equity represents about 66 percent of the average retired American’s wealth. It is a potential source of funds.
First, you can get an HECM at a good rate and tap nearly 60 percent of your home equity. You can do that as a lump sum, monthly payments, or as a line of credit that only has interest on withdrawals.
You must pay the property taxes, insurance, and maintain the house, and if you do, you can stay in the house as long as you like.That means even if the housing market goes down, or interest rates go up, you can stay in the house on the terms of the loan. The only time the loan is due is when you die or move. However, the lender can and probably will foreclose on the house if you fail to pay taxes, insurance, and maintenance. The county tax assessor could put a lien on the house if you don’t pay taxes.
In addition, the withdrawals on the credit line are tax free. You won’t have to sell investments to pay for expenses.
There is an upfront cost to getting a reverse mortgage of about $1,500 per $100,000. So it isn’t inexpensive, but it does let you turn your house into cash to cover expenses.
You might want to weigh the prospects of selling your home and downsizing against taking a reverse mortgage.