When it comes to talking with prospective borrowers and those considering a reverse mortgage, one of the top questions we receive is, “How can I use reverse mortgage funds?”
The answer is straightforward: You can use reverse mortgage funds whatever way you like! After all, a reverse mortgage draws on the equity in your property.
Many homeowners choose a reverse mortgage to pay off debt and have more money available for regular costs, but it doesn't have to end there.
Check out these 10 strategies for leveraging the proceeds of a reverse mortgage.
1. Make “Aging in Place” Modifications to Your Home
You're not alone if you want to live in your house far into your golden years.
According to research, approximately 90% of adults over 65 desire to remain in their homes as long as possible, demonstrating the "aging in place" movement's growing support among senior homeowners.
The majority of homes in existence today, however, are not built to meet the needs of senior citizens. Fortunately, you may put the required improvements into place to make your home suitable for retirement years by making a few adjustments.
From simple tasks such as installing better lighting and rearranging furniture, to more comprehensive modifications like installing ramps and stairlifts or widening doorways, there are plenty of proactive measures you can take throughout your home.
2. Eliminate or Reduce Credit Card Balances and Other Debts
What’s the largest source of household debt in the US?
You may have guessed it—mortgages.
In fact, as of June 2020, home mortgage debt sat at $9.78 trillion, representing 68% of household debt.
If you’re looking to eliminate your monthly mortgage payment and are age 62 or older, tapping into your home equity with a Home Equity Conversion Mortgage (HECM) —or reverse mortgage—could be just the solution. The loan funds from the reverse mortgage are initially used to settle any current mortgages you may have on your house.
You can do away with that monthly fee and save extra money to use as you see fit, like paying off other obligations, because the reverse mortgage does not require monthly mortgage payments.
Keep in mind to pay off high-interest loans first when paying off other debts, and don't forget to keep your emergency or "rainy day" fund intact.
The importance of having this financial safety net increases when you decide to devote more of your monthly income to paying off debts.
3. Set Aside Funds for Healthcare Expenses
When it comes to retirement, healthcare costs are a top concern among Americans, and understandably so – the price tag of future care for a healthy 65-year-old couple now hovers around $400,000.
Having a plan in place to manage these expenses well into the future is a vital component of smart financial planning.
Utilizing Medicare services is important, but you'll also probably need additional insurance or a prescription medication plan.
A reverse mortgage can be the best option if you could use an additional source of income to assist in paying for healthcare costs.
You can access the money from your home equity loan and use it anyway you see fit, whether that be to pay for long-term care needs, manage healthcare costs, or accumulate savings to offset rising insurance premiums.
4. Establish a Line of Credit for Emergencies, Occasional Expenses, or a Longer Retirement
Want to save some money for future costs but need some money right away? Your ability to do that can be enhanced by establishing a line of credit.
You might be able to use some of the money from a reverse mortgage line of credit at closing while keeping some for later use in retirement.
These reserves could be particularly helpful in the event of major sporadic bills, crises, or even a delay in income, with 40% of Americans stating that they lack the money to meet an unforeseen $500 expenses.
As was recently witnessed during the COVID-19 pandemic, starting this line of credit also serves as a safety net during uncertain times.
You can avoid taking taxable distributions from your 401(k) or other retirement plans and instead leverage your income tax-free reverse mortgage proceeds.
5. Help a Family Member with Major Expenses
You've probably seen members of your family struggle with significant bills like college tuition, a down payment for a house, a wedding, and a new family vehicle. It's only natural to want to step in and assist them,
If you want to help your family members fund some of these significant expenses, a reverse mortgage could help. And if your home value is $400,000 or higher, Longbridge Platinum could help you tap into even more proceeds—up to $4 million.
6. Defer Social Security Benefits
Perhaps one of the most important decisions you’ll face in retirement is when to start receiving those long-awaited social security benefits.
While one school of thought is to start collecting as soon as you become eligible, it’s important to note the clear benefits to deferring Social Security as well.
The Social Security Administration states that if you wait to begin receiving benefits until you've reached the full retirement age of 66, you'll receive 100% of your assigned monthly payments.
You will, however, receive 108% of the monthly benefits since delaying them by one year, or until you are 67 years old. Additionally, if you wait until the maximum age of 70 to start receiving, you will be eligible to get 132% of the monthly benefits because you delayed them by 48 months.
A reverse mortgage could be useful if you want to delay and optimize your Social Security benefits but need some extra money right away.
You can put off taking Social Security and increase your long-term benefits by wisely leveraging the equity in your home for daily needs.
7. Purchase a New Home
Are you considering moving? The financial ramifications of moving, especially on a fixed income, are frequently difficult to understand, whether your dream retirement house is smaller, is in a warmer climate, takes little upkeep, or is closer to loved ones.
The HECM for Purchase is simply a reverse mortgage where the loan proceeds are used to purchase a new home—all with optional monthly mortgage payments.
You pay the down payment and closing charges using the money from the sale of your present property or cash on hand. From there, the balance of the purchase is covered by your reverse mortgage loan proceeds, and any remaining funds can be used however you choose.
Learn more about how you can buy a house with a reverse mortgage here.
8. Spend More Time Doing the Things You Love
Retirement frees you more time for the pursuit of your passions, activities, and hobbies.
We all have something we enjoy doing, whether it's making stuff, cooking, exercising, trying out new eateries nearby, or even just bringing the grandkids for ice cream.
It's no secret, though, that getting these things frequently costs money.
So that you can spend less time counting money and more time doing the things you really care about, you can fund these activities by taking advantage of the equity in your home.
9. Take the Trip of a Lifetime
Do you love travelling?
Have you always wanted to check out that place that's been on your bucket list for ages?
The good news is that you now have the leisure to take that dream trip or excursion you've been planning for years. It goes without saying that travelling, especially internationally, may be expensive.
Why not use the equity in your home?
Reverse mortgage funds can make all of your ideal vacations a reality, whether they involve lounging in a warm, tropical location, exploring a foreign city's fascinating history, or simply getting in the car for a breathtaking road trip.
10. Fund Home Improvement Projects
There is always something around the house that needs to be done when it comes to homeownership.
Consider home remodelling projects that could transform your house into your dream home.
Enjoy making meals for the family? You might want to finally remodel the kitchen.
Want to arrange summer barbecues and entertain loved ones? Build a deck, patio, or swimming pool in your backyard.
Want to devote more time to your craft? Make that extra room your creative haven.
Dedicated to staying in shape? Create a dedicated workout area in your garage or basement.
The options are unlimited, and no matter the project, a reverse mortgage might be able to help you raise the money you need to realize your home remodeling dreams.
It's Time To Chat With An Expert About This.
You now know 10 methods to use the earnings from your reverse mortgage. But bear in mind that these concepts are just the start.
The possibilities are infinite since you can do whatever you want with the money from a reverse mortgage.
We know how important your home equity is—that’s why we’re committed to making the process all about you.
Our reverse mortgage professionals get to know you and take the time to understand your unique situation, so we can offer solutions that are best tailored to your needs.
Plus, if we ever feel that a reverse mortgage isn’t right for you, we will tell you so.
Not all lenders make that pledge.
