A senior who is looking to either more fully-fund a transition into retirement, or to bolster existing retirement resources including the home itself may benefit from a decision to tap into a home’s equity to access additional cash for a variety of reasons. However, for many at or close to retirement, tapping home equity is rarely an easy decision and should be made after an abundance of consideration into each possible option, including for a reverse mortgage.
This is according to David Mount, a director with the Wise Investor Group at Robert W. Baird & Co. in Reston, Va. in a column published in the Washington Post.
Specifically when it comes to the reverse mortgage option for tapping equity, Mount asserts that there is indeed potential viability for retirees and/or seniors in current financial situations while also describing the products as more complex than some other options which are available.
“Reverse mortgages are a viable option for those with limited access to funds and a sizable amount of equity in their home,” Mount writes. “You can either take out your equity in its entirety or opt to receive smaller amounts on a monthly basis over a longer period of time. Reverse mortgages are a bit more complex compared with a refinance or [home equity line of credit] (HELOC), so it’s important to do your research and speak with a loan specialist.”
Other equity access options Mount runs down for readers includes downsizing the home; refinancing an existing forward mortgage into one with potentially better terms and rates; and HELOCs, while noting they have variable interest rates.
In terms of determining the right time to access a home’s equity, Mount says that there is a very clear type of person that could most benefit from exercising such an option.
“Overall, using home equity toward retirement works best for those with a high level of equity in their home,” Mount writes. “It can help you secure your next property purchase, provide opportunity to capitalize on investments or pay down debts, and help grant you long-term financial security.”
However, if someone does not do their proverbial “homework” to determine what the upfront costs and associated risks are with any home equity tapping option, then making such a decision has the potential to be hazardous for the person’s financial well-being, he says.
“It’s important to remember that your home is not a liquid asset, and you should always avoid using equity in a manner that creates an unaffordable situation,” Mount says. “As with any big financial decision, you should work with a financial adviser to create a plan and strategize scenarios that will help you stay financially independent into and through retirement.”
Read the column at the Washington Post.