It’s very common for newly retired couples who’ve reached the ripe old age of 62 to pack up the family house and move to Florida or some other warm and tax-friendly state. But many choose to stay put in their family home now that the kids have left the nest.
However, you might have noticed that the family home isn’t quite keeping up with the times as it used to when it was new. After thirty or forty years of use, it needs everything from a new roof to a new energy-efficient HVAC system. The major problem is that because you’re retired, you’re living on a fixed income and don’t have the extra cash to pay for these repairs and renovations.
Enter the reverse mortgage. Says the financial pros at All Reverse Mortgage Inc., a reverse mortgage is a home loan that allows seniors, age 62 and older, the opportunity to borrow against all the equity they’ve built up in their homes without having to pay anymore mortgage payments. If approved, you can take your proceeds in one lump sum payment, equal monthly disbursements, or a line of credit. What’s more, you don’t need to pay the loan back unless you move or die.
You can use your reverse mortgage to pay for necessary home repairs if you so choose. But what other things will a reverse mortgage pay for?
According to a recent report by CBS News, if all were perfect with the world, you’d have all the cash you need for retirement and then some, allowing you the opportunity to enjoy the “back nine” of life without financial anxiety. But life all too often gets in the way and your life-long quest for financial freedom didn’t go exactly as planned. This is where a reverse mortgage can really come in handy.
If you’re approved for one of several varieties of reverse mortgage, you can utilize the proceeds (which can potentially run into the hundreds of thousands of dollars) to cover a wide range of financial expenses.
That said, here’s what the proceeds from a reverse mortgage can pay for.
Items a Reverse Mortgage Pays For
Says CBS News, there are virtually no restrictions on what you can use your reverse mortgage proceeds to pay for. Common expenses include the following:
–Covering sudden emergencies like a boiler that quits during the winter
–Paying off credit card debt
—Home repairs and renovations like a new roof or a small addition off the kitchen
–Ongoing medical expenses for one or both spouses
–A source of supplemental income
–Travel to exotic destinations
–Paying off your kid’s student loans and putting money away for your grandchildren’s education
The Best Use Case for Reverse Mortgage Funds
The best use for a reverse mortgage naturally depends on your present financial situation. But here are some suggestions for utilizing each of the three different types of cash disbursements.
Home Repairs and Renovations: Go with a Lump Sum Disbursement
Lump-sum disbursements that can garner your hundreds of thousands of dollars in one simple direct electronic bank deposit can be extremely useful for big, one-time purchases as opposed to ongoing ones, which are more suited to a line of credit. Since, in the end, the loan must be paid back, you need to ensure that you are getting the most bang for your buck.
One of the best ways to make the money you borrow work for you is to invest in home improvements. If you end up selling your home, you can deduct the interest on the loan. Plus, because of the home improvements, you will make a nice profit on the home, allowing you to pay off the reserve mortgage and keep a whole bunch of cash for yourself.
Ongoing Medical Care: Line of Credit
Since you don’t need a whole bunch of cash upfront for ongoing medical expenses, a reverse mortgage line of credit is said to be the right choice for this financial obligation. You can receive a credit line for a specific amount and withdraw funds as needed. You are only paying interest on the amount you withdraw. You can also pay back the line of credit at any time, with no financial penalty applying.
Common ongoing medical expenses for seniors 62 and older can include:
–Meds
–Medical equipment for the home
–Doctors appointments
–In-home nursing care
–Long-term medical care
A reverse mortgage line of credit can provide you with the reserve cash you need for these medical issues.
Supplemental Income: Monthly Installments
If you’re looking to supplement the income you are receiving from investments, Social Security benefits, plus other income sources, then monthly reverse mortgage payments will provide the additional income you can count on. Also, the IRS is said not to classify reverse mortgage proceeds as taxable income so long as you continue to live in your home.
Keep in mind that IRAs and 401(k)s are taxable by law, but by supplementing your monthly income with reverse mortgage proceeds, you can take less from these accounts and save on taxes.
If you’ve recently retired, plan on staying in your family home, and would feel more comfortable having access to more cash, you owe it to yourself and your spouse to apply for a reverse mortgage.