Reverse mortgages have had a bad reputation over the years, but for cash-strapped retirees, a home equity conversion mortgage (HECM) may be a good plan in retirement for certain homeowners, a recent article from Bankrate explains.
While there are many reasons for taking out a reverse mortgage, arguably one of the most important advantages, especially for retirees, is that it eliminates a mortgage payment.
“In a lot of cases, eligible homeowners will use the proceeds from a reverse mortgage to settle their existing mortgage debt or home equity line of credit, and use the remainder of the reverse mortgage loan as a line of credit,” the article says.
Another perk that can especially help retirees is that a reverse mortgage extends the life of other retirement savings.
At this point, the majority of Americans have heard that as a country, many workers are not as prepared as they should be for retirement. People are trying tactics like delaying collecting Social Security for a number of years past retirement, but Social Security and other forms of retirement income can only get some people so far. For those 62 and older, a reverse mortgage could help close that gap.
“Retirees in a 401(k) plan have to pay taxes when they begin drawing down on their retirement savings,” the article says. “A reverse mortgage loan can delay that, and thus the tax bill owed to Uncle Sam.”
There are many ways to make a reverse mortgage product work for a number of very specific situations, but learning what the product is actually about is the first step to success.
Read more about Bankrate’s five biggest advantages of reverse mortgages here.
Written by Alana Stramowski