Managing finances in retirement is difficult for many Americans, and the recent turmoil in the financial markets cut into many people's retirement savings. If you are concerned about outliving your savings or simply want additional financial security later in life and own a house, a reverse mortgage might provide a solution. Using a reverse mortgage, you can tap into the equity you already have in your home and take care of outstanding expenses.
Retirement can be costly, but a reverse mortgage can remove the stress of retirement finances and give you confidence.
Retirement doesn't have to be stressful
Living on a fixed income after you leave the workforce can be a big change, and many people are worried about making the transition. Only 22 percent of people are very confident about their retirement savings situation, according to study conducted by the Employee Benefit Research Institute.
The survey found that many people simply don't have the necessary income to set money aside for retirement. Respondents indicated that the cost of living made it difficult to save as much as they wanted, and that lessened their confidence regarding retirement expenses.
The truth is, retirement is getting more expensive. According to a recent study from Fidelity Investments, a couple that retires today will need $220,000 in savings to deal with healthcare costs alone. As people live longer and medical care becomes more advanced, that number could climb even higher. With the cost of living during retirement increasing, it's important for people in or near retirement to identify options that will provide the income they need to live a stress-free retired life. Luckily, reverse mortgages offer a possible answer.
What is a reverse mortgage
Most people are familiar with the structure of traditional mortgages that allow a buyer to build equity in a home over time by making monthly payments. Reverse mortgages use the equity that people over the age of 62 already have built in their home to provide consistent income. The Federal Trade Commission explained that a reverse mortgage genuinely reverses the paradigm established by a traditional mortgage. If you take out a reverse mortgage, you receive monthly payments that are taken from the equity you already own in your home.
Under this system, you don't need to pay back the money for as long as you continue to live in the house. If you choose to move out and sell the home, you will need to pay off the loan. If you pass away, your estate is responsible for the loan balance.
Who is a good fit for this type of loan?
A reverse mortgage is ideal for individuals who are retired and own a home. It can provide the consistent cash flow that many people need to retire confidently, but it only remains in effect if you live in the home. If you plan on leaving your home soon, a reverse mortgage might not be the right choice. Those who intend to retire in their current residence may find a reverse mortgage offers the freedom they are looking for, however.
Something to consider
If you take out a reverse mortgage, you are lessening your equity in a home, and your beneficiaries may need to sell the home after your death to pay off the loan. People who want to keep a house in their family may want to look into different solutions for retirement income. For those who want a reverse mortgage, Impac Mortgage Corp. Retail provides a strong option with no income or credit qualification requirements.