According to a study by GoBankingRates, around 42 percent of Americans have less than $10,000 saved for retirement. Even more concerning? As many as 13.7 percent have not saved a single cent for retirement at all.
The findings are hardly surprising given that around two-thirds of Americans depend on Social Security benefits as a major source of retirement income. And while Social Security and retirement savings accounts tend to get the most attention, home equity—a major source of wealth for the average American—is largely ignored as a source of retirement income.
It’s unfortunate, because reverse mortgages can actually offer financial relief in your retirement years.
What is a Reverse Mortgage and How Does It Work?
Homeownership has always been a core element of the American Dream. What reverse mortgages do is allow homeowners to borrow equity, receiving payments (instead of making them) from a mortgage lender—this is where the ‘reverse’ aspect comes in. Payments can be made in the following manner.
- Lump sum
- Monthly basis (for as long as the borrower lives in the house)
- Intermittent advances through a credit line
- A combination of all these options
How to Qualify
Reverse mortgages are available to homeowners (their name must be on the home title) over the age of 62, provided the home has enough equity in it. And therein lies the rub—you need around a 50 percent equity position to qualify for the mortgage. The exact threshold, however, depends on your age.
To get your home equity, just take the value of your home and subtract the amount you owe on the mortgage and other liens.
Cost of Reverse Mortgages
Like conventional mortgages, borrowers still have to pay fees to get their money; the fees can be packaged with the loan and financed. There aren’t any standard charges, so your costs will largely depend on your age, third-party vendor, and the kind of loan you choose.
Reverse mortgage fees typically include mortgage insurance premiums, monthly lender fees, an application fee, and the standard costs of closing (e.g. recording, escrow, and closing agent among others).
Why Get a Reverse Mortgage?
- For starters, a reverse mortgage will give you immediate cash-flow savings—a huge help for anyone looking to pay down debt, upgrade their lifestyle, or even tick off items in their bucket list now that they have the time to do so.
- A reverse mortgage also gives you the funds to settle your existing mortgage debt or line of credit on your home equity, leaving you with enough cash you can use as a new credit line.
- Getting a reverse mortgage also lets your Social Security benefits spend more time in incubation—the longer you delay taking out your benefit, the bigger its value becomes.
- The line of credit from your reverse mortgage also grows with time as the loan continues to acquire interest.
For more information about reverse mortgages, talk to mortgage advisor Chris Lamm to learn about the home loan process. Get in touch by calling 530-282-1166 to schedule your consultation.Questions? Contact Chris Today!