The baby boomer generation is uniquely suited to explore the ways in which home equity could benefit their retirement financing plans, and for those who find the concept of having to continue a monthly payment unappealing, two additional options present themselves: a home equity agreement, or a reverse mortgage. This is according to columnist Aly J. Yale in a piece published this month by Money.com.
“[H]ome equity loans, HELOCs and refinances all require a monthly payment, something retirees — or anyone on a limited income, for that matter — might be hesitant to take on,” Yale writes. “If a payment sounds unappealing in your case, you can also look at options like a reverse mortgage or equity-sharing agreement.”
For a reverse mortgage, seniors with a lot of home equity should consider it as an option while taking care to avoid some pitfalls of the product, the column says.
“The proceeds that you can get from a reverse mortgage is determined by the homeowner’s age, the value of the property and the interest rates,” says Stephen Resch, VP of retirement strategies at Finance of America Reverse (FAR) to the outlet. “So, we’ve got record-high home values and record-low interest rates, which means a borrower can really get a tremendous amount of money — much more so than they could just a couple of years ago.”
One thing that borrowers may want to watch out for, the column says, is the payment model since reverse mortgages come with a variety of disbursement options. This can offer options, but can also make the use of such a product confusing, the column says.
“You want to avoid running out of proceeds too early — or owing more than your home’s worth if it loses value,” the column reads. “You’ll also need to continue covering property taxes, insurance and other costs, or risk losing the home to foreclosure. Talk to a financial advisor if you’re considering a reverse mortgage of any kind. They can walk you through the full implications and risks of these products, as well as how one may impact your retirement goals.”
Interestingly, the article also solicits the opinion of a real estate broker who is an advocate for the use of the Home Equity Conversion Mortgage (HECM) for Purchase (H4P) program, one which has garnered only single-digit penetration within the already-niche standard reverse mortgage market.
“Utilizing a reverse mortgage allows a buyer to purchase a nicer or larger home and keep more money in the bank,” says Joshua Ezell with Breakthrough Real Estate & Property Management in Phoenix, Ariz. to the outlet. “It also has the added benefit of also not having a house payment.”
Read the column at Money.com.