If you’re a regular reader here, you know that there are a lot of myths about reverse mortgages. One of the biggest myths that we work to dispel is that reverse mortgages are a “last resort” and that our borrowers are desperate and needy.
While many of the negative connotations of the industry and these financial offerings are in the past, there are a number of circumstances that impact our lives where a reverse mortgage is a strategic decision that can set you up for a retirement that works.
We’ve spent time in the past reviewing and debunking many of the misconceptions common with reverse. Sure, some borrowers decide to use their home equity during financial uncertainty to help provide stability and fund unexpected emergencies. But, there are just as many borrowers who are looking for a reverse to strategically work with their finances, build their ideal retirement, and fund businesses and dreams.
Our borrowers have proven, even in these toughest of times, to be resilient, savvy, strategic, and constantly in search of finding ways to create the retirement of their dreams.
Here are real-world circumstances and profiles of the typical reverse mortgage borrower we see most often:
The Ambitious Borrower Looking to Start A New Business, Tap Hobbies & Interests
Retirement doesn’t mean you have to stop working or, more importantly, doing what you love. Free of the professional gig or full-time employment you had before, your retired years are actually the perfect time to discover new motivation and tackle a brilliant idea, start a small business, or look for a way to bring in additional funds in your golden years, while staying active.
Recently, a city manager in Virginia retired and was given a parade to celebrate her career. When asked what she was going to do in retirement, she declared that she’d spend a lot of time with family and open a small business devoted to knitting.
In order to find capital as a retired senior, you can go through the typical motions like applying for credit cards, business loans, tap your 401(k), or leverage your home equity. Of all these options, a reverse will allow you the ability to withdraw whatever portions of your available equity you’ll need to get the business started or to further develop your idea. As the business thrives, you can pay down the reverse loan without the burdensome challenges of credit card debt, loans, or eating into your valuable 401(k).
The Borrower Going Through A Divorce
Some marriages come to an end, That’s just a part of life. For older couples, a ‘gray divorce’ can throw uncertainty into the equation, especially if the couple both hold shared ownership in the home. While it’s dependent on the specific circumstances of the situation, a reverse mortgage can be a potential solution for when one of the spouses wants to remain in the house, or both decide it’s time to move on.
The Borrower Who Wants to Still Provide For Their Kids
One of the biggest misconceptions about a reverse is that getting one means you can’t help provide a legacy or hand off something significant to your children or heirs. Even with the upfront costs, which can be rolled into the loan, you need to realize the home is a single, undiversified asset. When the home is used to create a source of retirement income over that of a diversified portfolio of stocks, you can net out a higher potential inheritance. And, it becomes a protective bet against the value of your home because your borrowing capabilities increase no matter what the price of your home is.
The Borrower Delaying Social Security Benefits
These days, one piece of advice for retirees is to hold off claiming their Social Security benefits as long as they possibly can. Typically, age 70 is seen as a good time to consider beginning tapping into Social Security. Between the ages of 62 and 70, benefits increase to 8 percent each year of delaying access to Social Security. So, instead of claiming when you can at 62, and leaving yourself an eight-year window without income, a reverse mortgage can produce a bridge of income that replaces the entirety or a portion of the income Social Security would provide.
The Financially-Savvy Borrower
Now, more than ever, it’s important to be thinking about the future while also understanding how to plan given the uncertain economic future. Some retirees may be tempted to take out withdrawals from their investment portfolios. A reverse mortgage helps mitigate this risk with a line of credit (standby credit) that serves as a buffer to protect against adverse portfolio returns earlier in your retirement.
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.