Most people think that reverse mortgages are for desperate people who need money just to make ends meet. It can actually help you have access to more cash later in retirement (see Growing Access below).
Yes, a reverse mortgage will help those in need, but there are so many other ways they may be used.
The menu at the Left of (or below) this article contains a list of ways that reverse mortgages are used. Many of them may surprise you. By clicking on each menu item, you will see an interesting example of how someone could benefit from this powerful financial tool.*
One of the exciting uses for a reverse mortgage is in the planning for Cash Flow during retirement. This financial tool can be used to build greater access to cash in retirement even if the value of the home drops. A reverse mortgage may also be used to insure distributions from retirement accounts during market downturns.
The part of a reverse mortgage that makes it so useful is the Line of Credit feature. As you may know by looking at the page “Exactly What is a Reverse Mortgage?”, one may take the money from a reverse mortgage in three basic ways – most up front, consistent monthly payments, or a Line of Credit.
Growing Access To Money
The unique feature is that the amount you have access to in your Line of Credit grows at an interest rate 1.25% more that the loan rate. For example, if your loan interest rate was 3½%, your Line of Credit would grow at a rate of 4.75%, and of course that is compounded monthly.** The Line of Credit is available to you at any time, but you have not actually borrower it yet, so there is no interest accruing for that amount.
This Growing Line of Credit does not depend on the value of your home. It continues to grow even if your home drops in value.
It never expires for the life of the loan, which is based on your life or at least as long as you reside in your home.
If you choose to pay into a reverse mortgage, any amount you pay will reduce the interest and principal as in a normal mortgage, and the whole amount will be credited to the Line of Credit. That means that you will be able to take that money out again at any time in the future. And of course, while it is in the Line of Credit that amount will be growing along with the total amount.
These unique features of a reverse mortgage have become important building blocks for homeowners over 62 years to use in Cash Flow planning for their retirement.
*The stores presented are hypothetical and are presented as a means to demonstrate the possible uses of reverse mortgages. Any similarity to persons living or dead is strictly coincidental.
** The examples of increases in the Line of Credit shown above are in no way a guarantee of performance. They are given only as examples. The performance of any individual Line of Credit is dependent on variables such as the amount of the Line of Credit, the financial market conditions, the individual use of the Line of Credit by the borrower, etc. There is no way to make an accurate prediction about the future available Line of Credit to a borrower.