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Using a Reverse Mortgage as a Financial Planning Tool

For some homeowners, the thought of getting a Reverse Mortgage only comes to mind if they’re considering aging in place. While a Reverse Mortgage can be a great tool for allowing senior homeowners to remain in their homes as they age, it can also be a useful financial planning tool to secure their retirement.

With a Reverse Mortgage, the homeowner does not make monthly mortgage payments; the mortgage lender actually pays the homeowner, instead. With this type of loan, the homeowners can receive payment proceeds either in the form of a lump sum, multiple payments distributed throughout the year, a line of credit, or a combination of these. The homeowners can use the proceeds however they like. For seniors wanting to shore up their retirement and avoid having to work into their golden years, these proceeds can act as a financial safety net by providing enough money for them to pay their living expenses, medical bills, etc.

In order to qualify for a Reverse Mortgage, the homeowner must be 62 or older and owe little to nothing on their home. Other restrictions may apply. See full details of Reverse Mortgage eligibility here.

There are multiple ways senior homeowners can use Reverse Mortgages as a financial planning tool. Review some of them below, and feel free to reach out to our Reverse Mortgage professionals for more information.

  1. Access to Low Cost, Growing Line of Credit

If you choose to get the line of credit with your Reverse Mortgage, you will have access to funds that will actually grow over time. The longer you go without accessing the funds, the more it will grow. This means later on down the road, you will have even more credit available to you. Also, you only have to repay what you spend on the line of credit, similar to a credit card.

  1. Replace Cash Reserves

Get your cash reserves back where you want them to be by using your cash proceeds from the Reverse Mortgage. If you receive X amount in cash each month, for example, but you only use half of that amount to pay your bills, you can put the other half in savings to build your cash reserves and avoid using additional credit in the event of an emergency.

  1. Annuity-Style Payments Using Home Equity

This method of receiving Reverse Mortgage proceeds is ideal for people who prefer to have their cash coming in a steady, predictable pattern, as opposed to a lump sum. This can help homeowners plan their expenses accordingly.

  1. Postpone Drawing Retirement Benefits

The longer you can delay drawing on your benefits, the longer they will have to grow. By getting a Reverse Mortgage to help pay your expenses, you can leave your retirement benefits alone for a longer period of time. And since a Reverse Mortgage does not need to be repaid until the last borrower no longer lives in the home, there’s less pressure to take on the debt. By contrast, relying on high-interest credit cards that need to be repaid quickly can put senior homeowners in a financial predicament.

Keep in mind, every homeowner’s scenario is different. What may make sense for some won’t be the ideal solution for all. Speak with a qualified financial planner and research the pros and cons of Reverse Mortgage loans before making a final decision.

Want to learn more about Reverse Mortgages? Explore our Learning Center.