Turning that Mortgage Around

McFarland and Polito Retirement Reception_55
Source: Flickr

Your house that you bought so many years ago represents one of the biggest investments of your life. By the time you approach retirement, if you have stuck with it, you may well have that house paid off. And with appreciation, that home may be worth twice or three times what you paid for it and you have all the equity from those years of house payments. Therefore, in addition to the joy you have had living in that house and raising your family there, that house is also can be a big part of your retirement planning as well.

It used to be that to take advantage of that equity when you enter retirement, you either had to sell the house and go live in a nursing home or retirement community or you took out a new mortgage borrowing against the equity and you find yourself paying huge interest payments all over again.

But a new kind of mortgage called the “reverse mortgage” is now available so a senior citizen who is preparing for retirement can begin to realize some of that equity as capital and not have to take on a loan payment or move out of their home. This innovative new program allows you to set up the equivalent of a home equity loan but instead of getting a huge lump sum, you can have the equity sent to you in the form of monthly payments so the equity of your home can actually become part of your monthly budget to supplement Social Security or other retirement funds.

What is great about the reverse mortgage type of financial vehicle is that you are never required to pay back the loan of the money that is based on your equity. The only time that loan amount would be required of you would be if you moved, sold the house or passed away in which case the sale of the house would realize the equity to retire the loan. In other words, if you take out $100,000 from your home for medical costs or just to finance a comfortable retirement living, you are not called upon to pay back that money and you can continue to live in the house for as long as you want to.

This is a phenomenal arrangement that seems tailor made for senior who want to enjoy their retirement years without financial worries and do so living in the house where they raised their children and a home that has become so precious to them. For children of a retiring parent, the reverse mortgage is a godsend because mom or dad can stay in their own home where they are happiest. And if they can keep the old homestead, the whole family will continue to enjoy coming to visit there, seeing the grandkids run and play in the same yard they grew up in and having holidays there as well.

Like some of the best programs for retiring persons, the reverse mortgage was originally put together by the US. Department of Housing and Urban renewal. It isn’t often that the government gets something right but they hit one out of the ball park with the reverse mortgage. It is a program and provides federally insured funds to seniors so they can supplement their income in a safe way that allows them to use the equity of their home for their retirement comfort without ever having to give up that home. And because the money coming out of a reverse mortgage is technically a loan, you never have to pay taxes on that money which is another big financial blessing.
The reverse mortgage is an option worth considering as part of retirement planning. It gives seniors one more option for keeping their homes. And that is good for everybody.