Your home is a valuable asset when it comes to planning your financial future. If you're able to have your home paid off by the time you retire, you'll not only have a free place to live in your golden years, but you'll also have equity you can rely on if you need emergency cash. One way to get cash out of your home once you're retirement age is with a reverse mortgage. Here's why you may want to consider a reverse mortgage as part of your retirement planning:
You Don't Have To Make Payments On The Loan
The best thing about a reverse mortgage is that it's like getting a second mortgage except you don't have to make payments on it. Of course, you or your heirs will have to pay off the loan if you sell your home or pass away, but while you're alive, you can live in the home without having to make monthly payments to repay the reverse mortgage. This is a huge benefit when your income is reduced after retirement. You'll have access to the equity in your home to fund travel, living expenses, or medical bills when you need it without having to incur debt and additional monthly bills.
You Can Use The Money As Income Or For Emergencies
Reverse mortgages are versatile. You can take the money as a line of credit so you'll have money in reserve for when you need it for special occasions, or you can receive the money in monthly payments as a supplement to your income. This could be a good option if your retirement and Social Security income won't be enough to cover your expenses comfortably. The amount of money you can receive with a reverse mortgage depends on a few factors.
The amount of equity in your home is considered, and you don't necessarily have to have your home paid off to get a loan. You will need enough equity in your home to make the reverse mortgage worthwhile. Also, your age at the time you take out the reverse mortgage is considered. Generally, the older you are, the more money you can get because the length of the loan will be reduced. A financial planner or reverse mortgage adviser can help you calculate the expected amount you'll receive considering all the factors involved.
Your Heirs May Still Inherit The Home
You may fear that your children won't be able to inherit your home if you have a reverse mortgage. It's true that the reverse mortgage loan must be paid back when you pass away, but the house doesn't automatically go to the lender. Your children may decide giving up the house or to sell it to pay off the mortgage is the best move, but your children could also decide to pay off the mortgage and stay in the home. They may want to do this just to keep possession of the family home, or it might be a good financial move if the home is worth much more than the amount of the reverse mortgage.
The housing market will influence the price of your home at the time the loan comes due and this will determine the difference between your home's value and the amount of the reverse mortgage loan. However, reverse mortgages are a type of loan called a nonrecourse loan which means your heirs will not have to pay back more than the house is worth if the home declines in value in the coming years. Your financial planner can discuss this process with your children so everyone knows what to expect once you pass away.
One thing you'll want to keep in mind is that you'll still need to keep up with home insurance payments and maintenance as long as you live in your home and have the reverse mortgage. Also, the home must remain your primary residence, so if you need to move into a nursing home you may need to sell or give up your home to pay back the mortgage.
