Why Seniors Should Consider a Reverse Mortgage

Retirement is all about finally being able to relax. After working hard for nearly five decades, longer for those who started in their teens, you can finally coast on your savings and investments and live a life of leisure and ease. Or at least that’s what we all dream of while building your career between your twenties and your sixties. As you’re probably familiar with, many people imagine going on grand adventures the moment they retire. Finally traveling the world, going on cruises, even climbing mountains. But after you do all those things most seniors find that a comfortable retirement is made up of your favorite chair, an equally retired friendly pet in your lap surrounded by the happy memories of your family home. Reverse mortgages are a great way for seniors to get the funds they need to enjoy retirement without worrying about cutting too deep into retirement savings. The more equity on your home that you own, the more value is available to you in retirement but some methods of retrieving that value are more disruptive than others.

Home Equity and Big Loans

The most common ways to get retirement value from your home equity is in a large lump sum loan. Home equity loans, cash-out refinancing, and some forms of reverse mortgages will drop a large amount of money into your lap as the result of turning some of your home equity back into debt. A home equity loan is a straight loan leveraged against your equity value, cash-out refinancing places some equity back onto a new mortgage arrangement to be repaid at the slower mortgage rate and current interest rates.

The problem with lump sums is that they must be very carefully managed. Like winning the lottery, taking out a lump sum loan against your home equity still puts a lot of money into your possession quite suddenly. From there, you will need to decide which is the best savings account to stow it in, how to dispense it to yourself, and how much of it is safe to spend each month in order to maintain your positive. Except in the case of a reverse mortgage, you will also be expected to start paying the loan back relatively soon.

However, if you’re looking for a less disruptive solution, there are a few options for making good use of the value in your home equity that smoothly integrates into your current financial habits.

Home Equity as Income

One way to keep your finances stable is to actually turn your home equity into a new form of steady income by way of a reverse mortgage. While the traditional form of reverse mortgage is to get the amount in a lump sum, there are now multiple ways to build your reverse mortgage arrangement so that the money can take a number of different forms. One of the most useful models itself after an annuity which provides a certain amount of monthly income.

Some people are particularly uncomfortable living on savings, a situation that thrills almost no one. Simply seeing that number dwindle can be worrying and demoralizing even if you’re well within your planned-out budget. For retirees with this sensibility, not having some form of new income can be quite worrying. Fortunately, the income-style reverse mortgage is an ideal solution because you can very progressively transform your home equity into retirement funds and stability. Here, your reverse mortgage takes the place of your career paychecks and can quite comfortably supplement your savings accounts.

Home Equity As a Credit Card

However, you don’t have to take out a reverse mortgage to gain access to your home equity value. Some of today’s retirees may be much more comfortable with something that looks and acts like a credit card. In this case, you want a HELOC which stands for home equity line of credit. What a HELOC can do is open up the value of your home equity but not as a lump sum or even as a steadily stacking debt through reverse mortgage income. Instead, the card you use has a limit keyed to the value of your home and an expiration date.

The best thing about a HELOC is how you can use it. Rather than getting the funds and dispersing them through your accounts, the card turns a certain portion of your home equity into a line of credit that you can borrow against for specific purchases. You can, for instance, decide that your HELOC card is only for special treats so that you don’t overspend on your retirement budget, or only for a certain aspect of your lifestyle like grocery shopping. The HELOC card goes up to a certain amount and like a credit card, you can ‘recharge’ it by paying some of the debt at your leisure.

Suiting Your Financial Habits

The right route to access your home equity value is different for each person. Depending on your lenders, the deals available, and your personal style of financial management, one plan might be better for you than for your friends or neighbors. While lump sum home equity can be your best deal, many seniors find it much easier to work with an equity plan that goes along smoothly with their financial habits rather than requiring a great deal of extra setup and effort to gain any benefit. Both the income reverse mortgage and the home equity line of credit can make your retirement easier without constantly visiting your financial manager.

If you like having an income and want to directly supplement your monthly budget, a reverse mortgage might be the right answer. However, if you’re used to the credit and repayment lifestyle, a HELOC can allow you to easily integrate home equity value into your shopping and spending style. Of course, if you enjoy handling large lump sums of money, you can always try a few of the lump sum options as well.

For more information about choosing the right home financing or mortgage options for your financial situation, contact us today!