For most people who own a home, it is their largest asset, especially if you’ve lived in the same house most of your adult life and are now thinking about retiring. Americans who are over 60 are holding 52% of all of the home equity in the country, so why not utilize it to make your life more comfortable in retirement?
Retiring in America is getting more expensive every year and Social Security as well as pension plans are no longer something most retirees can rely on to get them through their golden years.
This is mainly because Social Security is flattening and isn’t expected to increase by even a percent next year. The average Social Security benefit is about $1,180.80 per month, which may sound like a nice chunk of change, but when you compare that to the national average cost of a home health aide, at $19 an hour, it can add up pretty quickly.
If you were to need an in-home health aide even five hours per day, four days per week you would be spending around $1,520 just to access that in-home care.
But don’t fret just yet. This is where a reverse mortgage can come into play and in some situations, can help close the income gap in retirement.
There are many different ways to use a reverse mortgage, but it all starts with determining where your needs are and where you will need the most help as you age.
If you are 62 or older and are interested in turning your home equity in tax-free loan proceeds, you have to choose how you would like to receive the funds. This is where you have the opportunity to strategize to make the product work best for your specific situation. You can choose from a lump sum (which is where you receive all the money at once), or a line of credit that can be accessed at any time, or regular installments either set monthly or on another schedule as agreed upon with your lender.
Choosing the right payment method for your situation is vital. For example, if you don’t necessarily need the money right now, but are concerned about things coming up down the road either with your house or with your health, a line of credit may be a good option as it actually increases over time if you leave it untouched.
On the other hand, if your needs are immediate and you know how much you are lacking each month when it comes to paying for your health care, the set monthly payments may be a better choice. You can choose to have the monthly payments for your whole life or you can choose for a set period of time if your needs are short term. The payments are called “tenure” payments or “term” payments depending on whether they occur for the lifetime of the loan, or for a set period of time.
Another option is to receive the proceeds as a lump sum. You may opt to use this payment method if you are in need of a large sum of money right now. Say you have to undergo a major surgery or your house needs major renovations to accommodate you and your spouse because you are both now in wheelchairs. A lump sum could help in the immediate term to pay for the unforeseen expenses you face. But do keep in mind, once you take a lump sum and have tapped into your home equity, you may not have the opportunity to do so again unless you refinance into a new loan down the road.
You also have one final option: a combination of the different payment plan choices. Depending on your circumstances, you might wish to receive some of the money as a line of credit and some of the money in installments, for example.
If you are interested in getting started and learning more on how you can close the income gap in retirement, contact us for more information.
To get an estimate of all reverse mortgage payment options and amortization schedules we used the online calculator found at https://reverse.mortgage. (No personal info / SS were required)
Payment plan definitions found at http://www.reversemortgage.org/About/Types-of-Reverse-Mortgages/HECM-Payment-Options