Retirement is the time to reap the rewards of your hard work. If you put money aside for your future, but believe you need to supplement your nest egg, you may be a candidate for a reverse mortgage loan. A reverse mortgage can benefit you if you’ve built equity in your home. If you’re interested in this type of loan to make your retirement more comfortable, you can use an online reverse mortgage calculator to find out how much money you can access.
The Ideal Candidate
Historically, reverse mortgages have been thought of as an option for seniors who are struggling financially. However, many experts now believe that the ideal candidate for a reverse mortgage is someone who has saved nearly enough money to live comfortably in retirement and who has a healthy amount of equity in their home. For instance, if you have $750,000 to $1 million in a 401(k), IRA or another type of retirement fund, and that same amount of equity in your home, then you may be in a good position to benefit from a reverse mortgage.
How a Reverse Mortgage Enhances Retirement Savings
While having a retirement account such as a 401(k) or an IRA is a wise choice, those types of accounts are vulnerable to the fluctuations of a changing market. When a retiree needs to access funds from a down portfolio, he is not making the most of his investments and could end up using his money too quickly. If you take out a reverse mortgage, the money from that loan can be used when the market is underperforming. Using funds from a reverse mortgage may allow you to take less money from your other retirement savings until they are once again benefiting from an up market.
Pacing Your Spending for the Long Run
One of the pitfalls of a reverse mortgage comes when people are unable to pace their retirement spending. It’s possible that the money from this type of loan will need to last for 10 or more years, so careful financial planning is required to make judicious use of the money. Even though there are restrictions in place that keep the borrower from taking more than 60 percent of their loan in the first year, you will still need to plan the use of your money to avoid running out of it too quickly.
A reverse mortgage is not for everyone. If you are considering taking out one of these loans, it’s a good idea to make use of financial planning tools or consult with a professional advisor to ensure that you have a plan that makes sense for your future, your resources, and your home.