Consider Your Home Equity as a Source of Retirement Income
Saving for retirement is the most common greatest financial priority for Baby Boomers who were surveyed in the 19th Annual Transamerica Retirement Survey released in December of 2019. Preparing for a financially secure future involves many factors, including going into the golden years with little to no debt. The reality is, only twenty-two percent of those Baby Boomers surveyed do not have household debt. Of those surveyed, 45 percent have mortgage debt, followed by credit card debt and a car loan.
In recent years, the amount of debt that retirees carry has grown, and it can be difficult to pay it off once they retire – especially if they haven’t saved enough. According to the survey, here is the breakdown of the expected primary source of retirement income for Baby Boomers:
- 42% expect to rely solely on Social Security benefits
- 39% expect to rely on personal savings from 401(k)s, 403(b)s, IRAs, and other investments.
- 8% expect to rely on company pension plans.
- 1% expect to rely on home equity.
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More on Reverse Mortgages as Income in Retirement
Considering their homes are the single biggest asset for many retirees, why aren’t more seniors tapping into their home equity as a retirement financial tool? An HECM, or a federally-insured reverse mortgage may provide an alternative solution for funding retirement.
A HECM is a collateral-based loan for senior homeowners 62 and older that allows them to convert the equity in their house to cash. The funds can be used any way the borrower chooses. Perhaps the past controversies of reverse mortgage products from dishonest lenders has steered Baby Boomers away from using the loan products as a retirement income supplement. Let’s look at some of the advantages of a reverse mortgage:
- The homeowner does not have to make payments on the loan.
- The homeowner owns the home, not the bank.
- The homeowner can live in the house for the rest of his or her life.
- The loan is a non-recourse loan which means the homeowner or heirs retain the equity.
- The homeowner or heirs are never responsible for the difference if the loan balance is larger than the home’s value.
- The income or lump sum they receive is not taxable.
- The homeowner can sell the home and pay off the reverse mortgage.
- After the homeowner passes away, the equity left over after paying off the reverse mortgage goes to their heirs.
For those Baby Boomers who expect to rely heavily on Social Security to fund their retirements, tapping into their home equity through a safe, heavily regulated HECM loan could be the answer to financial independence. If you are interested in the advantages a reverse mortgage, speak with a Certified Reverse Mortgage Professional who specializes in HECM loan products.
Learn more about how people are using home equity conversion mortgages for purchasing homes:
Please keep in mind that the reverse mortgage industry in constantly changing and some of the information contained on this site may not be current. Please ask a licensed reverse mortgage professional for up-to-date guidelines.