Retiring without having to make regular mortgage payments is a big dream for many retirees, but is becoming increasingly unattainable for many Americans looking to transition out of work. This is one of the core reasons why home equity broadly – and reverse mortgages specifically – could be a viable option for a senior looking to retire comfortably, according to a new article at Kiplinger Personal Finance.
“Many financial planners believe tapping that wealth in retirement or just before makes sense if done wisely for the right reasons,” the article says. “Your home’s equity might be the lifeline you need to avoid drawing from your investments during a market downturn or taking on more portfolio risk to make up for any investing shortfalls.”
While the easiest way for someone to tap into their equity is through the sale of the home, many seniors don’t want to entertain that option either because they don’t want to move, or they don’t want to enter the fray of the modern housing market. This is when other alternative options for home equity tapping can emerge, including a reverse mortgage.
Speaking with a couple in their 70s who recently refinanced into a reverse mortgage – Ray and Anne Smith, of Jasper, Ga. – they decided to enter into a reverse mortgage as a financial “cushion,” offering access to cash beyond their existing benefits including Social Security and an IRA.
“I wanted to make sure we will be comfortable and can live in this house as long as we want to,” Ray Smith told Kiplinger of his decision.
After a home appraisal at $350,000 with maximum proceeds of $230,000, they used the proceeds to pay off the remaining mortgage balance of $80,000, took a credit line of $150,000 and immediately withdrew $25,000 to pay off credit cards.
Product changes and additional changes like the financial assessment have allowed the reverse mortgage product category to “overcome a somewhat tarnished reputation,” the article says. This is because those product changes have allowed for the correction of previously problematic product features, and additional deliberation about the potential benefits of reverse mortgages by academics have also helped to reform the industry’s image, the article reads.
“You may leave more to the kids if you strategically use a reverse mortgage,” said John Salter, wealth manager for Evensky & Katz Wealth Management in Lubbock, Tex. who has studied the reverse mortgage product category.
Still, shopping around for a reverse mortgage is an essential part of the process, since individual lenders can vary on details such as lender and origination fees, margins and closing costs, according to National Reverse Mortgage Lenders Association (NRMLA) President Steve Irwin.
“Plus, you want to work with a professional who will meet you where you want to meet them—over the phone, the internet or the kitchen table,” Irwin tells Kiplinger.
Read the article at Kiplinger Personal Finance.