Reverse mortgages have a bad reputation. Before the recent overhaul with the advent of the HECM Program, those using a reverse mortgage could borrow up to 100% of their home’s value, leaving some borrowers in a terrible position if the value of their home lowered due to the real estate market collapsing in 2008 or due to property damage from natural disasters. Now, under the HECM, you will only be able to borrow a certain amount of your home’s value to protect you against these dangers. There’s still a lot to consider when it comes to using a reverse mortgage responsibly, however. Here are some of the top tips to consider if you’re leaning towards using a reverse mortgage in your retirement plan.
Introduce the Idea Early in Your Planning Process
For a long time, reverse mortgages have been seen as a last resort when it comes to planning your retirement. This means that many will be hesitant to bring it up early in the process when discussing their upcoming retirement with their financial planner or advisor. But due to the research and changing nature of reverse mortgages, many financial planners are now more educated about the advantages and uses of a reverse mortgage. Introducing the idea to your financial planner early in the process will allow them to create a plan that takes into account all the financial advantages and disadvantages of a reverse mortgage. This increases the probability of a reverse mortgage being a viable long-term plan for your retirement.
Understand the Reverse Mortgage Process
Reverse mortgages can be complicated for some homeowners to understand. They require that you keep up with your financial responsibilities as a homeowner – taxes, insurance, and upkeep – while at the same time offering a line of credit, regular payments, or lump sum that can greatly impact your overall financial situation in retirement. Use a reverse mortgage calculator, such as https://reversemortgagereviews.org/reverse-mortgage-calculator, to find out how much you can borrow against the value of your home. Then speak to a financial advisor to understand how to balance the financial responsibilities of a reverse mortgage with the advantages you can gain from using this option within your overall retirement plan.
Choose the Right Method of Reverse Mortgage
There are three main methods for getting the money from your reverse mortgage – monthly payments, a line of credit, or a lump sum. All these methods can be combined in various ways – you may opt for a small lump sum at the beginning of your reverse mortgage to add medical accommodations to your home and continue to maintain a line of credit into the future, for example. Each of these methods has advantages and disadvantages and each can be used in ways that are best for your financial stability in the future.
For example, monthly payments are a good option if you have a diverse financial portfolio and will not have to continue to make mortgage payments. You can leave more money in your portfolio to make more money in that way through the future, and you won’t have to pay income tax on the monthly payments. If you have a smaller portfolio and are worried about the speed at which your home equity limit will be reached, however, opting for a line of credit may be a better option for the long term.
As with any major financial decision going into retirement, the goal is for you to be able to maintain a comfortable standard of living without being forced to go back to work. A reverse mortgage, in conjunction with other retirement financial options, can be a great way to ensure this and be able to stay in your home long term.
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