For most of us, the bulk of our housing costs are relatively constant. Monthly mortgage payments may vary slightly as property taxes and insurance rate are updated annually. But one housing cost is often seasonal – Heating Ventilation and Air Conditioning (HVAC). It can make, or break, a budget.
One advantage of living in the south is the reduced cost of heating a home during the winter. The trade-off is the high cost of energy to cool the home in the summer. But this year, the U.S. Energy Department has forecast a significant increase in heating costs for the four primary fuels that heat America’s homes – natural gas, heating oil, electricity, and propane.
Some of these increases are due to price increases. However, according to the U.S. Energy Information Administration (EIA), weather plays a role as well. The EIA predicts cost increases for both electricity and gas for the residential sector across the nation.
We never know what contingencies may arise that will disrupt the monthly budget. Things like inflation, low interest rates, a poor sequence of market returns, family emergencies, and health concerns can all impact a homeowner’s bottom line. For those on a fixed income, these increases in winter heating costs are significant.
Fortunately, most older homeowners have a home equity nest egg that can improve their retirement cash flow. The reverse mortgage line-of-credit (LOC) may be established early in retirement and used for unexpected expenses or emergencies. If monthly cash flow is needed, a reverse mortgage tenure or term payment may do the trick.
There are three primary uses for reverse mortgages – Need, Lifestyle, and Planning.
Using a reverse mortgage to supplement retirement cash flow may allow the home itself to pay for increased heating costs. This can be done without disrupting traditional retirement planning. For this reason, a reverse mortgage may be used for all three of the primary uses mentioned above. Keeping the home at a comfortable temperature satisfies a need, improves lifestyle, and protects traditional retirement planning.
While the overwhelming majority of baby boomers wish to remain in their existing homes during retirement, home ownership can be expensive. I should know. I’m scheduled to replace two air conditioning units in the spring. But it may be wise for those who are at least age 62, and wish to age in place, to consider establishing a reverse mortgage line-of-credit today, and know that they can weather the winter storms as they come.
Is a reverse mortgage right for you?
A reverse mortgage can be of great benefit depending on your financial goals, but as with any other type of financial product, reverse mortgages are not an option for everybody. In order to qualify, you must meet certain requirements:
- The borrower must be at least 62 years of age
- The home must be your primary residence
- The home must have sufficient equity and you must be able to pay off your existing mortgage using the home equity
- Most single-family homes, town homes, approved condominiums and manufactured homes are eligible
As with any financial decision, you should carefully weigh the benefits and risks before making a decision. Contact a FAR representative today to learn more about the benefits of reverse mortgages and how they may help you secure long-term financial freedom.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.
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