How secure is your retirement nest egg? If you are like one-third of Americans, recent studies say you are ill prepared for retirement.
Just because you may not be adequately prepared to retire doesn’t mean that you are getting any younger, though. The clock will continue to tick as your savings get used up, and if you don’t have enough money set aside, there could be dire financial consequences.
But if you happen to own your own home, you may have an easier way to enhance your retirement income than you might think. Home Equity Conversion Mortgages, most commonly called reverse mortgages, can enable you to access your home equity at market interest rates without having to make any payments until you die.
While a reverse mortgage shouldn’t be the only tool that you consider for improving your financial wellbeing during retirement – and they should be discussed with your financial advisor beforehand – they may be a solution for some older Americans.
A few requirements need to be met for you to be considered a qualified applicant: You need to be of the qualifying age of 62 or older; you need to have substantial equity in your home and a low balance; you need to show that you can afford home upkeep, property taxes and insurance; and you need to attend a third-party credit counseling session beforehand.
A reverse mortgage functions much like any other mortgage with exception to the fact that payments are only made after your death and after the house has been sold. Interest accrues during this time period, and there are associated fees like origination fees, appraisal fees and others that you’ll have to encumber.
If you do go through the process and get approved, you can access your money as a lump sum, via a line of credit or via monthly distributions. The truth is that most Americans are not prepared financially for retirement. But knowing that you have access to a reverse mortgage to aid you during the retirement process is comforting for certain.
Just make sure you take the time to fully educate yourself on how these home loans work. Be sure to write down a list of important questions to ask the financial advisor during your conversation. Dot all your I’s and cross all your T’s and you may find that this is the right decision for your needs.