For retirees looking to use their homes as income during retirement, they have one or two choices: either downsize or get a reverse mortgage, according to a new ebook from the Center for Retirement Research at Boston College.
The booklet, Using Your House for Income in Retirement, is filled with infographics, definitions, examples and other useful tips for retirees who may be looking to shore up their savings by drawing on home equity as an additional source of funds during retirement.
WIth housing being one of the biggest single expenses for homeowners age 65 and older—consuming at least 30% of incomes for retired households—the ebook suggests that downsizing or getting a reverse mortgage can help add to an individual’s savings, cut expenses and free up income.
For example, downsizing from a $250,000 house to a $150,000 property can increase a person’s yearly income by $3,000 after calculating the difference in prices, moving and selling costs and how they affect yearly income. Additionally, this downsizing scenario can also free up $3,250 in yearly income when factoring the new housing expenses (taxes, insurance, upkeep and utility bills) associated with the less expensive home.
But for those who don’t want to task themselves with relocating, that’s where a reverse mortgage can be beneficial, the ebook notes, detailing several key requirements to be eligible for the loan along with critical Home Equity Conversion Mortgage (HECM) guidelines.
The ebook also describes the various ways to use a reverse mortgage, specifically, the different payment options a borrower can choose, including a line of credit, lump sum or monthly payment feature.
For an individual age 65 who owns a $250,000 house, with a reverse mortgage, that person will add about an estimated $8,600 to his/her income, pay about 3.3% of the value of their house, and above all, remain able to live in their current home, according to an example outlined in the ebook.
A reverse mortgage has long been described as a viable financial resource to help aging homeowners age in place, however, it has also repeatedly been described as a solution that is not “one-size-fits-all.”
For this reason, the Center for Retirement Research encourages prospective borrowers to use online resources, including a reverse mortgage calculator from the Department of Housing and Urban Development if they would like to learn more about their options and the finer details of the home equity-tapping loans.
“Your house has many uses. It’s your home. It’s wealth you can use as a reverse or bequest. And it’s a potential source of income. How you use it depends on what you need and value,” the ebook concludes.
View the ebook.
Written by Jason Oliva