Reverse mortgage loans allow you to borrow against the equity in your home, providing a potentially powerful impact when planning for retirement.
Reverse mortgage loans are becoming a popular option for senior homeowners across the nation over the age of 62 who want to access equity in their home and convert it into cash. With loan proceeds, borrowers pay off their existing mortgage and may then use their funds to pay off credit card debt, fund their medical care needs, and whatever other expenses they need to cover.
For the majority of senior homeowners who may not have all the income they need, a reverse mortgage loan may help them feel more retirement-ready. Since many senior homeowners hold the majority of their wealth in home equity, the opportunity to utilize this largely untapped asset can help bolster retirement income.
According to the article, 80 percent of all households have more money in home equity than they do in their combined financial assets and retirement accounts. For many, a standby and growing reverse mortgage line of credit often ends up being extremely impactful so senior borrowers have money when they need it. For some, it may just be the most powerful financial tool available.
According to the author of the Dallas Morning News article, it wasn’t until he saw the results of a personal financial planning software that he became a firm believer in reverse mortgage loans as a viable retirement strategy. Using this software, physicist and internet consultant Brian Vezza analyzed and compared two case study scenarios in order to determine the potential impact of a reverse mortgage line of credit.
The case studies assumed 3 percent inflation, a 6 percent rate of return, California residency, low property taxes, and a 95 year-old life span. They compared two fictional couples, “Mr. & Mrs. Housepoor” and “Mr. & Mrs. Notready.”
Mr. & Mrs. Housepoor is an already retired couple, ages 77 and 76, receiving $2,000 a month in Social Security benefits, a savings of $150,000 and a house worth $443,000. After paying Medicare premiums, home operating expenses and income tax, they will have $30,300 a year in purchasing power for the rest of their lives. But, with a reverse mortgage line of credit, their purchasing power jumps up 50.8 percent to $45,700 a year.
Mr. & Mrs. Notready is a couple who lost their jobs before they were ready to retire. They are aged 67 and 65, respectively, receiving $2,000 a month in Social Security benefits, a savings of $70,000 and a house worth $200,000. After paying Medicare premiums, home operating expenses, and income tax, they will have $20,000 a year in purchasing power for the rest of their lives. But, with a reverse mortgage line of credit, their purchasing power increases 29.5 percent to $25,900 a year.
In both situations, the data showed noticeable boosts in purchasing power by employing a reverse mortgage line of credit as part of a total retirement strategy. With a potential boost to your spendable income by 25 to 50 percent, you may want to at least consider a reverse mortgage as a topic in your financial planning conversation as well.
You may read the full DallasNews.com article here.
To learn if a reverse mortgage loan could be your solution to a financially well-planned retirement, contact a licensed and experienced reverse mortgage professional at 1-888-998-3147.