Reverse mortgages can be an effective and reliable way to enhance financial security in or around retirement for California homeowners. While reverse mortgages have sometimes been considered unsavory or even risky, they can actually be responsibly employed to help ensure you stay solvent — and are able to meet expenses and more — later in life.
Read on to learn a little more about the reverse mortgage process and why it might be a great option for you and your financial security.
How To Use a Reverse Mortgage to Increase Financial Security
Reverse mortgages can serve a number of useful functions, broadly allowing retirees and other individuals to build a more diverse and reliable financial portfolio. Whether to purchase a new home, delay social security benefits, or for another purpose, a reverse mortgage can be highly effective. The following are some ways in which the reverse mortgage process can help build a strong financial portfolio.
Protect Your Investment Portfolio
For most retirees, your fiscal portfolio is heavily dependent on the state of the market. The need to sell investments in a poor market can be a major drain on your portfolio, causing it to deplete early and making later retirement riskier. For this reason, a reverse mortgage early on in retirement — particularly in a poor financial market — can be a helpful way to buffer pressure on your investment portfolio. The reverse mortgage process can allow you to draw on home equity when markets are bad, avoiding early depletion of a retirement portfolio.
Delay Social Security Benefits
In a similar spirit, you can protect your later retirement by delaying social security benefits and using a reverse mortgage to cover the difference between retirement and benefit collection. By delaying filing from age 62 to 70, benefits can increase substantially.
Pay Roth Conversion Taxes
A reverse mortgage can also be an effective way to avoid higher taxes if you are converting from a traditional IRA to a Roth IRA, which is often done to pay lower income tax when retired. Taxes need to be paid on the conversion, and using proceeds from the conversion to pay taxes can contribute to further rising tax payments. For this reason, using funds from a reverse mortgage process can be a cost-effective way to pay conversion taxes while avoiding moving into a higher income bracket and owing more in tax.
Buy a New Home
Downsizing is often common in retirement, as retirees often need less space and may look to maintain a smaller property. Taking out a reverse mortgage can be an effective way to produce a novel income stream to help with savings or overall cash flow while still earning some sales profits.
Gray Divorce Strategy
Gray divorces — or divorces for couples over the age of 50 — are increasingly common in the United States. Of course, divorce at an older age can be financially challenging, particularly when dividing assets is complex, which is often the case.
A reverse mortgage can be an effective way to pay the costs of separation later in life. It can help cover ongoing costs associated with the separation or be an effective tool to generate a substantial sum when the divorce first takes place.
Increase Retirement Funds With a Growing HECM Credit Line
While not always possible with every financial institution, a home equity conversion mortgage (HECM) line of credit can be a particularly financially savvy way of utilizing the reverse mortgage process. Under this type of financial arrangement, interest only accrues on funds withdrawn. Moreover, the part of the credit line that is not withdrawn may grow in value.
Reverse Mortgage Benefits
In the past, the reverse mortgage process was conventionally thought to be a measure of last resort and was often considered particularly financially risky. However, many homeowners and financial advisors have come to see the myriad benefits of a reverse mortgage.
In addition to the specific reasons for taking a reverse mortgage listed above, here are some of the unique, general benefits found in this type of financial arrangement.
No Obligations for Monthly Payments
Unlike most traditional loans, monthly payments may not be necessary. Instead, charges are deferred and will accrue over time. Moreover, prepayments are allowed.
No Maturity Date
Payment of a reverse mortgage is not needed until the borrower does not live in the property.
Credit Line Growth
Under an HECM arrangement, the unused portion of the line of credit will continue to grow.
Guaranteed Access to Funds
As long as the loan is in good standing, access to funds is ensured, and the loan cannot be canceled.
Borrowers do not incur personal liability on the reverse mortgage loan. In addition, the repayment balance of the loan cannot, at the time of repayment, be greater than the property value.
Reasonable Obligations for Borrowers
Under a reverse mortgage, the obligations for borrowers are modest and manageable. Borrowers must continue to live in the home and utilize it as their main residence; borrowers must keep the home reasonably well-maintained; finally, borrowers must stay up-to-date on all property taxes, liability insurance, and other relevant property charges.
In short, a reverse mortgage can be an excellent way for homeowners and retirees in California to stay financially secure. A reverse mortgage has significant benefits, allowing for considerable access to long-term financial security without excessive risk. Moreover, in situations of grey divorce, Roth IRA conversion, the ability to delay social security benefits, and other situations, a reverse mortgage can be a helpful way to ease financial obligations and enhance fiscal security later in life. Best of all, reverse mortgage qualifications are reasonable and can be helpful to a wide spectrum of individuals.
If you are a homeowner or retiree in California interested in diversifying your fiscal portfolio, contact Your Reverse Mortgage. With extensive experience in reverse mortgages, we can help you transform home equity into a stable income, promoting a thriving retirement.
Visit Your Reverse Mortgage online today, or call 925-969-0380, and ensure your retirement is as healthy as possible.