In today’s uncertain economy, many retirees are facing significant income reductions, smaller pension pots, and increased expenses due to inflation. If you’re a property owner and over the age of 62 years, you could convert your real-estate equity into spendable cash. This can be done through a reverse mortgage – also known as a Home Equity Conversion Mortgage loan (HECM) – which is a versatile funding tool that can provide you with retirement cashflow in the form of a lump-sum payment, a stream of payments, or a line of credit.
Here are ten ways you can use a reverse mortgage to upgrade your retirement:
- Home improvements
During your retirement, you’ll be spending a lot more time at home, so why not use the money for home renovations that will improve your standard of living in your later years? You could also convert an area on your property into a separate space for a family member or caregiver. - Planning for healthcare
A reverse mortgage may be a less expensive insurance policy against your healthcare needs until you’re eligible for Medicare at 65 years. According to the Administration on Aging (2020), around 65% of Americans over the age of 65 will require some type of long-term healthcare services. In addition to nursing care, you’ll also need to plan for unexpected medical costs such as hospital bills for surgery or physical therapy after an accident. - Cover unexpected expenses
With a HECM loan, you can get a line of credit that grows over time, giving you the peace of mind that you’ll have access to funds if and when you need them. The best part is that you’ll only need to pay interest on the amount you draw and the proceeds you’ll receive are paid out tax-free. - Maximize your social security and pension pay-outs”¨
The monthly loan income could allow you to hold out on drawing your social security until after 70 when you’ll receive a higher amount. Whether you receive them in instalments or as a lump sum, taxes can eat into both your social security and pension payments. The monies from a reverse mortgage could help you decide when to receive these pay-outs and minimize your tax liability in doing so. The decision to hold off on receiving social security by using a reverse mortgage loan needs to be considered carefully to ensure it makes sense based on the payouts, tax benefits, and costs of doing a reverse mortgage. - Eliminate your monthly mortgage payments
With a HECM loan, you’ll be able to pay off your remaining mortgage payments and continue living in your home. But you’ll still have to pay your property taxes, homeowner’s insurance, and home maintenance costs. - Improve your asset allocation
Instead of liquidating other taxable assets, you can use the proceeds of a reverse mortgage loan to pay monthly expenses so that you can hold onto other value-improving or interest-earning assets. The proceeds can also be used to pay off your credit card and other high-interest debt. - Buffer your investment portfolio
A HECM loan can help ease the volatility of investment markets and fill unexpected gaps in your retirement income due to poor returns from underperforming stocks. You can also hold onto these stocks until they recover so that your retirement portfolio is not depleted in the event of a major market downturn. - Strengthen your cash flow
With a tenure-based or modified tenure plan, you can get a monthly payment for the rest of your life (as long as you continue to meet your loan obligations). Combining these monthly life-tenure payments with your social security pay-outs is a great way to help replace your salary.9 - Set up a retirement business
Studies have indicated that staying active, mentally alert and connected during retirement is the best way to combat the health issues caused by aging. You can use your HECM loan proceeds to set up a part-time consultancy or retirement business, making use of your work experience and niche skills. This can also be a great way to supplement your income or give back to your community. - Transportation and travel
Arrange alternative transportation for when you’re no longer comfortable driving yourself or use the funds to plan a trip to visit your friends or family.
If you’re interested in discovering more about how a reverse mortgage could help improve your retirement, contact us to speak to an advisor.
We’ll be happy to sit down with you to get an understanding of your financial circumstances before discussing different mortgage options that will meet your personal needs.