Smart Ways to Use Reverse Mortgage
A Reverse Mortgage or Home Equity Conversion Mortgage, HECM, has made huge changes which makes it better with the new rules passed by HUD earlier this year, as a way for some to significantly improve retirement income security.
Home equity is probably the most valuable asset owned by most retirees in the U.S. Properly leveraging this home equity is becoming a crucial part of a secure retirement as pensions dry up, savings accounts deplete and social security is not enough.
There are a variety of ways to tap into one’s home equity such as downsizing, taking a traditional home equity loan, home sharing, entering into a sale leaseback arrangement, or entering into a reverse mortgage.
Now a reverse mortgage is not for everyone but more and more are taking a second look as a part of their retirement plan.
What You Can Do with a Reverse Mortgage
1. Get a standby reverse mortgage line of credit. A standby reverse mortgage line of credit can be used to mitigate market risk and other retirement income planning risks.
Instead of using a reverse mortgage towards the end of one’s retirement when assets might be dwindling, strategic use of a reverse mortgage closer to the front end of one’s retirement could be even more beneficial.
2. Postpone claiming Social Security. The use of reverse mortgages can be to postpone claiming Social Security benefits, or to defer one’s employer sponsored pension plan.
This strategy (depending on the value of your home) actually uses up a large portion of your equity early on in retirement, instead of relying upon it later in retirement.
3. Receive income from a Reverse Mortgage. The use of a reverse mortgage is to exchange debt for income by replacing a traditional mortgage payment with a reverse mortgage.
More and more retirees enter into retirement with an outstanding mortgage. Some retirees, he says, are now taking a reverse mortgage to pay off their traditional mortgage, and at the same time creating a line of credit or generating additional income.
Seniors need to have a comprehensive understanding of the risks and costs associated with a reverse mortgage. A reverse mortgage decision should only be made after doing your due diligence and incorporating the decision into your overall retirement plan.