What if a 50 Percent Down Payment Meant No Mortgage Payment in Retirement?
A mortgage free retirement is ideal for most people. Fixed income means budget restrictions for most retired people wanting their funds to last. One method of retirement income protection and generation is a reverse mortgage. Many people approaching retirement know about using a reverse mortgage on their home to tap home equity, but they didn’t know that they can use a reverse mortgage to buy a home.
This scenario is ideal for people who already have paid off a mortgage but want to relocate and/or move into a smaller home. With 50% of the new home’s purchase price down and a reverse mortgage, they can have a mortgage free home and possibly even additional income.
There are requirements for a conventional mortgage that some older people may find they don’t qualify for due to income, or, they simply don’t want a conventional mortgage. There are ideal situations for the use of reverse mortgages including those who wish to stay in their home as their primary residence for several years and have enough income to cover property taxes and homeowners insurance. Many retired homeowners also use a reverse mortgage to help delay pulling Social Security or using other funds.
Because you don’t have to make mortgage payments, that money can be used for a variety of other purposes, as small as day to day expenses, or home remodeling or even a vacation. The money from a reverse mortgage can be paid to the homeowner as a line of credit, in unified monthly payments or as a lump sum. With the support of a financial advisor, the way the funds are used can help extend other retirement funds.
Use a reverse mortgage to buy a home
However, many people didn’t know you can actually use a reverse mortgage to buy a home. Many times, people use the proceeds from a home sale to purchase their next home, however using a reverse mortgage helps maintain some of that cash rather than reinvesting it all into a new home. This is particularly beneficial for those retirees looking to have improved cash flow and no mortgage payment.
A hypothetical example of how this can benefit you, looks like this:
You sell your $400,000 house to move into a smaller $250,000 home. Upon the sale of the first home, you put $125,000 as a down payment and meet the other qualifications which include being at least 62, and having income to meet certain payment obligations. The older you are, typically means you can borrow more. And although you have options in how you receive the funds, you should talk to your financial advisor about the best option for you. This allows you to not have a mortgage payment through retirement.
When the Reverse Mortgage is Paid
If you no longer want the home to be your primary residence, through death, or relocation, you can sell your home and keep any equity. If you die and there is equity, it can be given to heirs. If there is no remaining equity, the federally backed HECM program pays the bank- no debt is passed to heirs.
Reverse mortgages are ideal for retirees who have little retirement or retirement funds that they may outlive, as the funds create a supplemental income or delay the use of other retirement funds first. In fact, the most successful uses of a reverse mortgage are early in retirement, so other funds can continue to grow.
Reverse mortgages aren’t right for everyone, so it is important to speak to a reverse mortgage specialist who can do a financial review and break down all the associated costs, just like any other mortgage lender would do. Ask for connections rather than trusting unsolicited ads for reverse mortgage products. While there have been dramatic improvements in the reverse mortgage lending practices, there are people who may still look to take advantage of those in financial trouble looking for a quick fix. An ethical lender will make sure you understand all the costs upfront and be an advisor for you.
If you have additional questions about Reverse Mortgages, give me a call today. I am happy to answer your questions about reverse mortgages to see if it is in line with your retirement goals and objectives.