Nov 2, 2022
Housing is the number one cost and chief concern for people in retirement. What if you could use the equity in your home to generate income and put your mind at ease? On this week’s episode, join me for a conversation with Mutual of Omaha’s Mitch Cooper to discuss reverse mortgages. We’ll dissect the pros and cons and give you the information you need to decide if a reverse mortgage makes sense for your retirement.
You will want to hear this episode if you are interested in...
- Who is eligible for a reverse mortgage and what are the logistics? [2:01]
- The most strategic use of a reverse mortgage [8:18]
- Does a reverse mortgage have a downside? [19:37]
- Final thoughts [23:00]
What is a reverse mortgage?
The average American has two-thirds of their wealth tied up in home equity. So the biggest question becomes how do you access that equity safely and strategically? Enter the reverse mortgage! The simplest way to think about a reverse mortgage is as a lien on your property. You still own your home, but you pay off the loan when you sell, and there is no required monthly payment as long as you still live there. Once the last borrower leaves the home, the loan is due. However, be aware that there is still interest accruing monthly!
One of the biggest factors for reverse mortgage eligibility is age. The minimum age requirement for an FHA reverse mortgage is 62 years old. Some proprietary programs go down to age 55, but that will vary by state. Unlike traditional loans, reverse mortgages won’t give you access to 80% of your home’s value. The amount of a reverse mortgage loan depends on age and interest rates. The older you are and the lower the interest rates, the more equity you will have access to. Typically, a 62-year-old can liquidate around 30% of their home's value through a reverse mortgage.
Less house, more estate
The most strategic use for a reverse mortgage is using it to open a line of credit. Let’s say you own your house free and clear, and you qualify for a $200,000 reverse mortgage. With no existing mortgage payment, you could leave that in the line of credit, giving you a liquid tax-free bucket that can be used for several retirement income strategies. One of which is using a line of credit from a reverse mortgage to pay for long-term care if needed. Or as an insurance policy in case of emergencies.
Ultimately, reverse mortgages should be viewed as an asset protection tool. With the stock markets seeing losses as high as 20%, a reverse mortgage can be used as a timely shield to prevent your IRA from getting drained in down markets. Using a reverse mortgage alongside other assets makes both last longer. Research shows that using a reverse mortgage in this strategic manner actually increases the value of your estate because of how it can protect your other assets. Listen to this episode for more on reverse mortgages!