Protecting Your Retirement Assets from Risk with the Power of Home Equity Wealth
You can plan, save and strategize, but there are only so many factors within your control to ensure a comfortable retirement. From market volatility to inflation to longevity, there are risks that can’t be avoided, but simply managed.
According to Wade Pfau, PhD, CFA, RICP, a professor at the American College for Financial Services and founder of RetirementResearcher.com, reverse mortgages — when used correctly — can provide an added layer of financial security for retirees.
Historically, reverse mortgages have been surrounded by negativity, referred to as a loan of last resort. But Dr. Pfau explains, “Reverse mortgages are not inherently a bad idea, though they are often misunderstood and not used in a most beneficial way. Opening a reverse mortgage earlier in retirement and using it in a strategic manner is generally more effective.”
More than a retirement tool, a retirement strategy
For older homeowners who wish to age in place, a reverse mortgage can be a smart financial strategy, allowing you to leverage the funds amassed in your home, free up cash and help to create a more financially secure retirement lifestyle.
How can a reverse mortgage be used? According to Dr. Pfau, there are different categories, ranging from strategies that use the home equity quickly to those that utilize it over time. For example:
Portfolio/debt coordination for housing. A reverse mortgage can be used to pay off an existing mortgage to eliminate that expense from your budget*. This may help preserve other assets and investments, as you won’t need to make withdrawals to pay what could be a sizeable monthly bill. Of course, you must remain current on taxes, maintenance and homeowners insurance.
In addition, the proceeds can be used to make home renovations and modifications to age in place. A reverse mortgage for purchase can also be used to buy a new home that best meets your needs, as long as the new home serves as your primary residence.
Portfolio coordination for retirement spending. By spending home equity first, you can let your investments continue to grow, reducing the need to take distributions when the portfolio is down, or when assets would need to be sold at a loss.
Loan requirements include living in the home as your principal residence, paying property taxes and insurance, and keeping up with basic home maintenance.
Funding source for retirement efficiency. You can use a reverse mortgage to delay your claiming Social Security, which would extend retirement sustainability. Remember, even though Social Security benefits can be collected as early as age 62, claiming them before you reach full retirement age will typically result in reduced monthly benefits for the rest of your life.
A reverse mortgage can also be used in the form of monthly payments, Or you can use the proceeds to help fund traditional long-term care insurance premiums.
Credit preservation. Opening a reverse mortgage early on, even before you need it, allows the line of credit to grow. If part of your loan is held in a line of credit upon which you may draw, then the unused portion of the line of credit will grow in size each month. The growth rate is equal to the sum of the interest rate plus the annual mortgage insurance premium rate being charged on your loan. The earlier you establish a reverse mortgage line of credit and the less you take out up front, the more funds you’ll have in the future.
As long as you continue to meet your loan obligations, the lender cannot reduce or cancel your line of credit. After it’s set up, the line of credit grows at a variable rate. If needed, you can tap into your line of credit to help overcome the rising costs of daily living or to afford health-related needs like in-home care.
“Reverse mortgages are non-recourse loans,” reminds Dr. Pfau. “So when the loan is repaid, if the balance is greater than the appraised value of the home, the borrower or their estate is not on the hook for paying that difference.”
A strategy worth exploring
If you’re interested in learning more about reverse mortgages, the loan specialists at Reverse Mortgage Funding LLC (RMF) are ready to answer your questions. Give us a call today at (888) 277-1567, and we’ll set up an in-person meeting at your convenience. We look forward to working with you!
This content is sponsored by RMF, one of the nation’s leading reverse mortgage lenders. We are dedicated to helping older Americans retire more freely, in the comfort of their own homes. As a result of our commitment to providing an extraordinary and positive customer experience, we have earned a 98% customer satisfaction rating; a 4.5-star / Excellent score on Trustpilot; 4.8 out of 5 stars on LendingTree; and an A+ rating with the Better Business Bureau. Call 888-277-1567 to speak with a licensed reverse mortgage specialist to learn about our retirement financing products and solutions.
* As with any mortgage, you must meet your loan obligations, keeping current with property taxes, insurance and keeping your home in good condition