After securing historically low mortgage rates just a few years ago, many homeowners are now feeling like they’re stuck in their homes. They don’t want to give up that low rate and take their chances in today’s housing landscape where property values and interest rates are elevated, even if their current home no longer suits their evolving needs and physical requirements.
However, homeowners aged 62 and older can leverage their increased equity into retirement funds by selling their home in this competitive market and using the proceeds to purchase another home with a reverse mortgage.
Senior homeowners have various reasons to downsize. Perhaps their current home is too large to maintain, keeping up with the yard work is becoming a burden, or they’re no longer comfortable climbing the stairs. Motivations to relocate may be financial or familial as well. A reverse mortgage can free up room in the budget, create an ongoing stream of consistent income, establish a reserve fund for the unexpected, and facilitate a move closer to family.
Homeowners considering a reverse mortgage should contact a mortgage professional to discuss the benefits, process and details of the program. They can research the value of the property and calculate how much equity can be accessed. Next, they can weigh their options and decide how best to utilize the funds. The proceeds can be taken as a one-time lump sum, or set aside as a source of monthly income, a line of credit or a combination thereof.
Purchasing a home with a reverse mortgage also allows seniors to retain significantly more money than buying one outright with cash. While paying cash for a home eliminates a mortgage payment, those funds are then tied up in the property instead of being readily available and not subject to constantly changing market conditions. Say a homeowner nets $325,000 from selling their home, and they find a new downsized home that’s listed for $300,000. If they pay full price in cash, they’d only be left with $25,000 in the bank. By using a reverse mortgage and a large down payment instead, the built-in equity becomes an instant retirement fund with a substantially higher available balance.
Of course, there are misconceptions about reverse mortgages. Some believe they’re designed to take advantage of senior homeowners. In actuality, the Home Equity Conversion Mortgage program is regulated by the Federal Housing Authority and is structured with the express purpose of allowing seniors to age in place in their own homes while maintaining financial independence. Homeowner education and counseling are part of the process.
Reverse mortgages provide financial freedom and flexibility for senior homeowners. Whether they want to stay in their current home and turn their equity into income or move into a new home that complements their retired lifestyle while providing financial security, seniors who’d like to explore their options should contact a mortgage professional and invite their family to join the discussion about how a reverse mortgage could work for them.
