Based on a 2013 survey of the Board of Governors of the Federal Reserve System, around 31% of Americans said they had zero retirement savings and lacked a defined-benefit (DB) pension plan. Such a scenario is extremely stressful for people looking to retire by the time they hit their 60s.
To supplement retirement expenses, lenders formed reverse mortgages which are loans accessible to senior homeowners aged 62 years and above and which enable them to convert a portion of their home equity into cash. For the protection of both lenders and borrowers, the federal government has been improving reverse mortgage regulations to enhance sustainability and to guarantee that homeowners have the financial resources to meet their obligations.
Here's what you need to know about the role of a reverse mortgage specialist in boosting your retirement savings and income.
Reverse Mortgage and Raising Retirement Savings
You may be able to improve your financial outlook in retirement by establishing a reverse mortgage line of credit. With an FHA reverse mortgage, called Home Equity Conversion Mortgage, (HECM), you do not have to make monthly payments and the home stays in your name. The loan only comes due when you permanently leave the home or do not pay your property taxes and homeowners insurance.
You will still be charged interest and mortgage insurance on the balance of the loan, but you are not charged interest on money that stays in the line of credit. In fact, the line of credit actually has a growth rate attached to it so it grows larger over time. Also, no matter what happens to the value of the home, the reverse mortgage line of credit can never be reduced or closed unless you deplete it or permanently leave the home.
More and more financial advisers are recommending their clients to establish the line early so it can grow over the years and will be available to you no matter what the economy or real estate market does in the future.
Boosting Retirement Income through Reverse Mortgage
Reverse mortgage can be used as a retirement income tool for a more secure retirement income plan. Starting these mortgages earlier can provide two important advantages. First, if you have an existing mortgage on your home, getting money from a HECM can decrease strain on your retirement investment portfolio by using the HECM proceeds to pay it off. With the mortgage payment eliminated, you will extend the life of your assets.
Second, you can achieve better risk management of assets when the market is down. Tapping the HECM proceeds instead of drawing depreciated assets from your portfolio during market downturns will allow time for your portfolio to recover.
Because the growth rate on the HECM line of credit is tied to the going interest rate, as rates increase, the growth rate on your line of credit will increase as well. By opening a HECM line of credit before you need it, particularly with the current low interest rates, allows for the proceeds available in the line of credit to grow as rates increase meaning that you will have more money available in the future.
Don't wait to consult a reverse mortgage specialist. Get all the details of how a HECM reverse mortgage can allow you to start saving or to increase your income so that you can leave other investments intact and enable them to grow.
"Should You Retire On Your House?" Forbes.com
"The Reality of the Retirement Crisis," AmericanProgress.com
"Using Reverse Mortgages In A Responsible Retirement Income Plan," Forbes.com