For millions of Americans, thinking about retirement is something they dread. While it wasn’t always this way, recent financial crises have put a sizable dent in the nest egg of many Baby Boomers. To make matters worse, very few people have pensions anymore and some experts are even predicting Social Security will soon run out of money.
However, thinking about retirement does not need to be filled with dread, and one of the reasons to hope is the reverse mortgage. This mortgage product has been around since the 1960’s but has only started to gain in popularity in recent years. With that in mind, let’s take a look at five reasons a reverse mortgage is the right move for retirement.
1) Get the home of your dreams
Be it your primary home or a second home that you could use during the winter months – a reverse mortgage might help you get the cash you need. If you know about reverse mortgages, then you know that you can only use these loans for your primary residence. But that is no reason why you can’t use the equity in your first home to purchase a second home.
Talk about killing two birds with one stone. This move allows you to essentially freeze your mortgage payments on your first home and then use the cash to buy a second. In doing so, you end up with two assets which will appreciate over time.
In addition, you can also use a reverse mortgage to purchase a home. While the down payment requirement is higher than a traditional mortgage, the net result is that you can purchase a home without having to make any mortgage payments.
2) Finally retire
You don’t need to work until you die and getting a reverse mortgage can help you put an end to your daily commute. The reason is simple: eligibility for reverse mortgages kicks in at age 62. As such, you can use this loan to get the extra cash you need to retire while not enrolling for Social Security until you are 70.
This move allows you to increase your monthly Social Security payments by more than 30 per cent. Talk about a windfall. So, tap into the equity you have built up in your home and tell your boss to take this job and …
3) Grow your retirement portfolio
Given how low interest rates are today, getting a reverse mortgage is actually less expensive than alternatives. The bonus is that you can tap into the equity without needing to make any mortgage payments, as such, it is a much better option than getting a home equity line of credit.
One popular approach is to take out a reverse mortgage as a line of credit and then use the proceeds to invest in a vehicle which will help your retirement portfolio grow. In this way, you can build up your nest egg, while collecting the annuity or dividend payments.
This is a great way to put your money to work for you and, depending on the interest rate environment and the growth of your portfolio, such an approach might give you a lower cost of capital than other options.
According to a report by the New York Federal Reserve, today’s seniors are deeper in debt than they were in 2003. That is saying something as the situation was not great following the burst of the dot-com bubble.
As such, securing a reverse mortgage can be a great tool to make sure you have access to the funds you will need during your retirement. While you shouldn’t use this money to take an around-the-world cruise, the additional funds can cover expenses such as health care or other emergencies.
5) Take advantage of real estate prices
It used to be that you would have to sell your home to take advantage of high real estate prices. However, reverse mortgages short circuit that approach by allowing you to remain in your home will getting the cash you need.
Another benefit is that reverse mortgages, which are insured by the Federal Housing Administration, are protected from going underwater. So, if what you owe is more than the value of the home, the bank can only collect how much your house fetches at sale.
This is a big plus as the seeds of the next housing crisis have already been planted. So, now is your time if you want to cash out before interest rates get any higher and housing prices top out.
The views, opinions and positions expressed by all Troy Media columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of Troy Media.
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