With an increase in cost of living Senior Americans are turning to reverse mortgages to increase important cash flow. Sometimes pensions and social security payments just aren’t enough to keep up with bills and living expenses. If you’re over 62 and own your house then a reverse mortgage could be a solution for you.
Retirement Plans Neglect Inflation
Senior citizens approach retirement planning as if they will never have to use their money. A common assumption is that inflation won’t affect them. Instead of viewing it as a priority, many Americans put off retirement planning until they are forced by a crisis to take action. They understand that inflation is an inevitable part of life, but they assume it won’t affect them until they are much older. With up to 48% of babyboomers without adequate cash savings for retirement the reverse mortgage offers as a great solution if you have a home.1
Introducing Reverse Mortgages
A reverse mortgage is a loan that allows homeowners who are older than 62 gain access to the equity in their home. This form of asset-based lending requires little money down and no monthly payments until the loan is paid off. The loan can be repaid at any point or, if desired, can remain outstanding until the owner dies.
Reverse mortgages have been around since the 1980s. They are popular among seniors who want a steady income stream without having to move from their homes. The process can be lengthy, however, and it most cases you will need the help of a financial adviser.
Reverse Mortgages Increase Personal Cashflow
There are many seniors who use reverse mortgages to increase cashflow. These are loans which allow people to borrow money from their home equity. Interest is paid on the loan as people’s income increases, and principal is repaid when they sell their house. It can be a good solution for seniors with assets like a home in order to make them last until they die or retire. Although there are some disadvantages that come with this type of loan, it has its advantages that make it worth considering for eligible borrowers.
Am I Eligible For A Reverse Mortgage?
In order to begin applications for a reverse mortgage you first must be:
– The home must be a primary residence.
– At least one borrower in the primary residence is at least 62 years of age.
– The applied residence must be a single family home, multi-family home up to four units, or a HUD approved condominium.
Common Reasons For Using A Reverse Mortgage
Need Cash But Have Bad Credit – A reverse mortgage can give seniors a lump sum of cash which can be used for many reasons. It can be used to pay off outstanding bills, travel or even put money aside for your descendants after you have passed away.2
Medical Bills – With growing medical bills for many senior citizens it can be a cash positive benefit to withdraw from the equity in your home.
Flexible Loan Terms – Some seniors are physically unable to enter into a conventional mortgage or would have a difficult time qualifying based on the income from their job. These seniors can use a reverse mortgage as an alternative.
No Restrictions On How You Spend It – Unlike other forms of personal loans, a reverse mortgage does not require you to use the money on a specific type of item. You can decide what you want to do with the money once you receive it.
No Downside – Unlike other types of loans, there is no downside to a reverse mortgage. You can continue to stay in your home at no cost and have whatever happens with the money, happen. You will never owe more then your home is valued at as you’re borrowing cash out of your appraised value.
Risk Of Reverse Mortgages
Losing your home – The most significant disadvantage is that reverse mortgages eventually lead to the loss of ownership. Lenders don’t take away your house though, they just get a share when you die. If you stay in the house until you die, you can bequeath it to your loved ones without a reverse mortgage.
The Bottom Line
With increases in cost of living, some seniors are turning to reverse mortgages to increase important cash flow. People often underestimate the effect inflation has on their finances but it is important to look at it as an ongoing source of income.
1. https://www.aarp.org/retirement/retirement-savings/info-2019/no-retirement-money-saved.html
2. https://reversemortgagevalue.com/can-get-reverse-mortgage-bad-credit/
