Making the decision about where and how to spend retirement can be difficult for many American seniors, often dictated by the amount of resources a retiree has access to. One of these decisions can involve either moving — into a new home or an assisted living facility at the appropriate time — or choosing to remain home and age in place.
One potential option for seniors who want to age in place could be a reverse mortgage, if it’s determined that their situation warrants such a step. This is according to personal finance journalist Jill Cornfield in a column at CNBC.
A reverse mortgage is an option that could make sense for retirees, particularly if retirement isn’t well funded, Cornfield writes.
“One pitfall to be aware of, however, is that the money you transfer could disqualify you from other needs-based programs, such as Medicaid,” she writes. “When the equity is in your home, you are still eligible, but you could easily reach the asset limit,” according to Certified Financial Planner David Abate with Strategic Wealth Partners, in Independence, Ohio. If you have aspirations to move, then a reverse mortgage could present an issue, Abate tells Cornfield.
“[With a reverse mortgage] you can’t move out, and it has to be your primary residence,” Abate tells CNBC. “If you find that it no longer fits your lifestyle, five years from the time you decide, you are stuck.”
An additional option is refinancing, which can provide a simple way for a retiree to access some additional cash, Cornfield writes. Analyzing your current borrowing rate against the borrowing rate of a refi can help a retiree see how long it would take to recoup any closing costs that come with refinancing, the article explains.
“A general rule of thumb is that if you can repay the difference within two years and you plan on staying for longer, then it’s a low-risk option,” Abate tells Cornfield.
Read the article at CNBC.