Editor’s note: This is the second installment of a two-part series on reverse mortgages.…
A reverse mortgage can be a way to relieve cash flow stress for a retired family. While this may not be suitable for everyone, there are people for whom it may seem like a salvation.
When we mean a borrower or retiree, that person is over 62 years old. Typically, the same concepts apply, be it one person or a married couple. For more information on how reverse mortgages work, see last week’s column.
Nathan Johnson, Reverse Mortgage Lending Specialist (www.todaysreverse mortgage.com), sees several types of borrowers who benefit from reverse mortgages. Some of these circumstances are described here.
For a retiree who has a home mortgage, if the payment restricts the money available for other living expenses, a reverse mortgage can ease the pressure.
Depending on the age of the homeowner and the assessed value of the home, a reverse mortgage can pay off an existing mortgage, thus eliminating paying for the home. There may even be enough capital to provide the borrower with a line of credit. A line of credit can be opened for monthly payments to the borrower or provide an opportunity to raise money as needed.
Sometimes a home without a mortgage is a retiree’s greatest asset. If this household could use slightly more cash flows, it could benefit from the reverse mortgage. The lump sum can be invested for future use, or a line of credit can be set up to provide monthly cash flow or the ability to periodically raise funds.
Retirees often reduce the size of their home, and retirees often decide to move closer to their families. In these situations, a reverse mortgage can be used to buy a home.
The size of the mortgage will depend on the age of the borrower and the assessed value of the home being purchased. A line of credit may also be available on the home depending on these factors.
Nathan saw that a line of credit with a reverse mortgage was very helpful. While there are options for when it can be used, he advises “to consider a line of credit as a way to preserve capital. This is guaranteed even if the value of your home falls. And it is not taxed when you extract money from it, but it grows tax-free. “
If there is concern that the value of an investment portfolio has been hit hard by the market downturn, a reverse mortgage line of credit may provide some relief.
Some reverse mortgage specialists advise a homeowner over the age of 62 to obtain a reverse mortgage and use it in place of retirement assets. This strategy may not make sense for most people as it can reduce the flexibility that a reverse mortgage offers in your larger financial situation.
Linda Leitz is a Certified Financial Planner. You can contact her at email@example.com…