Perhaps the most widespread financial advice given to young couples is to invest in a home. Consumers understand that paying rent is simply giving someone else the money for their investment, so at their first financial opportunity, they buy a home. As the home builds value, their reassurance in the wisdom of their investment grows, too.
But a good investment isn’t just a safe way to grow money. It is a place where ultimately that growth can be harvested. Yet, many homeowners plan never to sell their home but instead to live in it until their deaths, when the heirs will reap the rewards. As a result, they may buy less house than they could afford, just because of their reluctance to tie up that amount of money for the rest of their lives.
But there’s the misunderstanding. The money is tied up only as long as the homeowner wants it to be. A reverse mortgage can allow that homeowner to live life in the house they choose, and then after retirement begins, to withdraw some of the money they had invested years earlier.
How much money? That will of course depend on the value of the property, but a reverse mortgage calculator can produce some very impressive numbers to people interested in this arrangement.
With the greater opportunity for this option, homeowners and potential homeowners can now avoid some of the most common catch-22 situations that they so often face.
Retirement can be a joy, but it can also be a struggle, especially from a financial standpoint. It generally means having less income than you are used to. Often, your income may be reduced to a small fraction of what you are used to. If you are at least 62 years old, you may qualify for reverse mortgages to assist you. It is a special home loan available only when you reach that age. A reverse mortgage can provide you with money you do not owe back for a long time. That money is traditionally doled out to you in monthly installments. If necessary, you can request a lump sum or a line of credit, instead. To qualify for a reverse mortgage, you must own and live in the home in question. You must also continue to take care of the responsibilities of home ownership, such as tax payments and property maintenance.
Many times, homeowners end up with more house than they need for retirement. Most people peak their home size while their children are still at home. This can put them in a four- or five-bedroom house that is too much to heat, clean, and maintain once those children are gone. Yet it’s still home, and the memories there are too much for many people to part with. And after forty or more years in the same place, they have neither the energy nor the desire to move anyway.
Using a reverse mortgage to free up cash gives these homeowners the best of both worlds. They can keep the lifetime of memories in their existing home but still afford to get that luxury resort experience every so often.
Other homeowners, in an attempt to avoid feeling trapped in a warehouse in their golden years, invest early in life in a house that isn’t as large as they would like or could afford. As mentioned earlier, they don’t expect the personal acquisition of the wealth they build in their home, so they invest in a smaller dwelling and divert funds into other options that they can retrieve more freely and without any sentimental interference.
The pitfall there is that a smaller home is a less effective investment. Smaller homes are in neighborhoods with other smaller homes, so there is a risk of an overall decline in the area that can erode the value of even a well-maintained home. Homeowners who build or buy a large home among other large homes see better returns on their mortgage investments because larger homes retain their value better.
The most important caveat in this whole process is to review it with investment advisors, tax professional, and even the family. This comprehensive examination of the situation will prevent costly mistakes, just as it will with liquidation of any other investment.