How to Cash in on Your Home (Without Moving Out)!

Since the pandemic beginning in 2020, the cost of goods has increased significantly. Older Americans are finding their retirement savings are not going quite as far as they had expected. As older adults consider different ways to supplement their retirement incomes, one consideration is a reverse mortgage. But what is it, and when might it be a good option?

It is always best to consult with your financial advisor, and maybe even your estate planning attorney when considering a reverse mortgage. They can more definitively help you determine whether a reverse mortgage is right for you, and elaborate on the pros and cons. 

What is a Reverse Mortgage?

A reverse mortgage is essentially a loan for older homeowners who are in need of additional cash. It allows homeowners to borrow against the value of their home, turning their equity into cash. This is useful when someone is “house-rich, money-poor” as they say. If someone needs more liquid assets, they often seek a reverse mortgage to get some cash out of the equity they’ve paid into their home.

The homeowner can continue living in their home as long as they pay property taxes, insurance, and generally maintain the home. Homeowners can receive cash in a lump sum, or as monthly payments, or as a line of credit. They do not have to make monthly payments (like with a traditional mortgage), but instead the loan will be repaid when the homeowner finally sells the house, moves out or passes away.

Who Can Get a Reverse Mortgage?

There are a couple of requirements to secure a reverse mortgage, if you do determine that it is a good option for you.

• You must be age 62 or older. If your spouse is under age 62, you can still get the mortgage, but your spouse will be considered a non-borrower, whose name would not be attached to the reverse mortgage.
• You must have sufficient equity in the property – at least 50% of the property’s value 
• The mortgage must be on your primary residence
• You must attend a required counseling session with someone approved by the U.S. Department of Housing and Urban Development (HUD), to ensure you understand how a reverse mortgage works and what you’re signing up for.

When Might it be a Good Option?

If your retirement savings or retirement income are insufficient to cover living expenses, a reverse mortgage can provide or make up for this missing cash flow. As people age, they generally face increased healthcare needs, leading to higher medical expenses. Long-term care is particularly costly, and even routine medical care can quickly become expensive.

Some older Americans want to improve their property in their older age, to make it easier to get around, or even just for resale value. A reverse mortgage may serve as a loan to help fund these improvements. Still another reason could be emergency expenses like large medical bills, a new vehicle, or other unanticipated event. 

A reverse mortgage can be a valuable financial tool for older adults facing rising living costs, where retirement savings are insufficient. By converting home equity into cash, it offers flexibility to address various needs, from healthcare expenses to home improvements. Consult with a financial advisor and/or your estate planning attorney to ensure it aligns with your financial and estate planning goals.