Reverse Mortgage Could Help Your Retirement
As retirement approaches, a lot of Americans look to investments such as a 401(k), bonds, and certificates of deposit for steady income. But something that not everyone may immediately think of is to also to sign up for a type of loan that is typically considered a last resort option for seniors experiencing a cash shortfall in retirement. You may have even seen the late night TV commercials: “Is a reverse mortgage right for you?”
Despite having the reputation of being pitched by actors who were popular in the 1980s, reverse mortgages, which let retirees tap the equity they have built up in their homes, have become a much better deal in recent years.
They could possibly be an unexpectedly valuable part of your overall financial plan for retirement.
Another strategy which has been recommended for retirement is to delay Social Security benefits. For those who are coming up short in their retirement savings, delaying your Social Security benefits can result in a bigger payout, and this could be a big help in your retirement years.
Your Social Security benefit at full retirement age is based on your highest 35 years of earnings. But what if there is a low or zero income year in those top 35 years? By working an extra year late in your career, you could increase your payout by raising the amount in those top 35 years.
For 46% of women and 15% of men, working until age 63 instead of 62 replaced a zero-income year in that calculation, according to a new working paper from the Center for Retirement Research at Boston College.
Now, that’s all well and good. But what if you can’t delay your benefits because you need the income? Here’s where the reverse mortgage comes in. You might use a reverse mortgage to provide income for several years while you delay claiming Social Security–or you could tap a reverse-mortgage line of credit to minimize withdrawals from your portfolio in a stock-market downturn. It might even be a good idea to sign up for a line of credit early in retirement even if you never need it.
Something else to consider about reverse mortgages — these loans do not have to be repaid as long as you still live in your home. To qualify as a borrower, you need to be at least age 62 and own your home as a primary residence. You can take the loan as lump sum, as payments over different periods (including your lifetime, as long as you remain in the home), or as a line of credit that doesn’t have to be repaid until you move or die.
And since the Recession, federal rules governing these mortgages went into effect in 2013, and a lot has changed for the better. At the same time, industry competition is helping to lower fees.
There are a lot of nuances and options available for reverse mortgages, and as more Baby Boomers head into retirement, the tools for comparing reverse mortgage deals are likely to improve. Best bet in the meantime would be to consult your financial advisor, and see if this is a good option for your retirement planning.
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