How To Include A Reverse Mortgage In Your Retirement Plans

A reverse mortgage can be a beneficial financial tool, but only if it’s used wisely. Reverse mortgages can get a bad reputation because all too often people go into it as a short term solution without a strategy and get themselves in trouble. That’s why it’s important to have sound guidance from your financial planners and mortgage broker if you’re considering this option as part of your retirement plan.

A reverse mortgage is a type of loan available to people who are 62 years of age or older. With a reverse mortgage you receive funds as a lump sum or fixed monthly payment based on the value of your home. The amount of your loan then becomes due when you die or sell the home. These loans are regulated to ensure you or your estate aren’t held responsible for the difference should your home value change in the interim.

Because of this, a reverse mortgage can be a huge asset for people looking at a future on a fixed income in retirement. However, it’s important to be careful. Here are 6 things to consider when making a reverse mortgage part of your retirement plan.

6 Things To Understand When Including A Reverse Mortgage In Your Retirement Strategy

#1: Postpone Drawing On Your Retirement Assets

Because a reverse mortgage provides you with an additional source of income, it can be used to supplement your other retirement savings. By taking out a reverse mortgage you can postpone drawing on your other retirement assets and give them more time to grow. Likewise, this also allows you to delay taking social security and pension payouts, thereby increasing how much you receive. 

#2: Eliminate Monthly Mortgage Payments.

Your mortgage payment is a major monthly expense. If you’re still making mortgage payments after retirement, a reverse mortgage is an important option to consider because it eliminates your mortgage payments. On a fixed income, freeing up that money every month can be a huge help.

#3: Replace Depleted Cash Reserves

If your retirement savings are a little lacking or if you don’t have enough cash in reserve, a reverse mortgage can help you get up to speed by supplementing depleted cash reserves.

#4: You Likely Won’t Be Able To Pass Your Home Down To Your Heirs

One important consideration when evaluating a reverse mortgage is that it’s based on the value of your home and that amount becomes due after you sell the home or pass away. Because of this, that means that you most likely won’t be able pass your home on to your heirs as part of your estate. It’s important to manage these expectations and, if you have others living with you such as children or tenants, it’s important to consider their future and ensure they have a plan in place.

#5: Be Aware Of Interest And Fees

There are fees associated with a reverse mortgage that it’s important to be aware of and plan for. If you’re not prepared, this can eat into the money you get from a reverse mortgage and make it less beneficial than it otherwise would have been.

#6: Do Your Research

Finally, do your homework thoroughly to be sure you avoid any reverse mortgage scams. A good reverse mortgage based on a sound financial strategy can be a help. A bad one can get you into trouble. Make sure you have a reliable advisor to guide you through this process.

Your reverse mortgage should be a long term solution and incorporated into your retirement strategy. Otherwise, it won’t be as effective and can even be harmful. If you’re looking at a reverse mortgage as part of your retirement plan, let’s talk. Learn more here.