Do I need to tap into my home equity now or should I save it for an emergency?
Accessing your home equity is a big decision. In the past, most homeowners were advised to save equity for emergencies. But studies published in the Journal of Financial Planning suggest that tapping equity earlier, and retirement funds later, might be a better strategy to help extend the life of your assets. Setting up a line of credit1 for future use can be a great way to protect yourself from downturns in the real estate market and ensure that the equity you have today will always be available when you need it.
Am I on a fixed income with no other assets?
You must be certain that your income allows you to keep up with your obligations—if you take out a reverse mortgage loan and then have trouble paying your property taxes and homeowner’s insurance, you could face foreclosure. So, it’s important to have a plan in place for how you’ll pay these expenses.
How long do I and my family plan to live in the home?
A reverse mortgage makes the most sense if you plan to live in your current home for at least 3 to 5 years. The FHA mortgage insurance, which is there to protect you and the lender in case your loan balance ever grows to be more than your home is worth when the loan is repaid, carries an upfront premium. That premium, and the closing costs associated with any home loan, can make reverse mortgages an expensive way to borrow money IF you don’t plan to stay in your home.
Would my spouse or partner want to keep living in the house without me?
It’s important to discuss this question carefully as a couple. If you’re married, talk to your lender to determine if your husband or wife may qualify as an eligible non-borrowing spouse2 on the loan. After the passing of the last surviving borrower, an eligible non-borrowing spouse can remain in the property and defer the reverse mortgage becoming due and payable. However, they will not have access to any remaining funds in the reverse mortgage which were available to the borrower, and they must continue to meet loan requirements (paying taxes and insurance and maintaining the property) to prevent the loan being called due and payable for other defaults. If your spouse is deemed ineligible, they will not receive this deferral period, and the loan will become due and payable after the passing of the last surviving borrower.
Is my property condition and layout conducive to aging in place?
As we age our ability to get around comfortably and safely may diminish. It may be necessary to make some structural adjustments to the home, allowing you to age in place comfortably and safely.
How can I extend the sustainability of my portfolio?
By supplementing my cash flows from a reverse mortgage, I can reduce the rate at which I deplete my retirement assets, leaving more in my portfolio to grow over time. Balancing these resources gives me flexibility to more strategically use my resources for my benefit3, 4
What are my legacy and lifestyle goals?
Is your budget and retirement income sufficient to live in the lifestyle you desire? What is your desire with respect to inheritance? A reverse mortgage can strategically be used to enhance not only your lifestyle as you age, but also maximize the amount you leave to your heirs3.
Is my current lifestyle and my spending habits sustainable?
Balancing the budget each month can be difficult. Additional monthly cash flows from a reverse mortgage can minimize taxes5 and enhance my portfolio by reducing my distribution rate4. At my current distribution rate, how long will my retirement assets last, can I weather market volatility, and can I continue to lead my life in my current lifestyle?
Do you have a backup plan in case the markets turn, or we have sustained inflation?
Hedging against these and other challenges is part of the essence of a reverse mortgage. It is always best to be prepared to face challenges before they arrive. The line of credit feature is a powerful tool designed to give homeowners options to face life’s challenges as they arrive.
Contact us at Watermark Capital to explore options as you consider these important questions. Consulting with an expert in this field can be invaluable to you as you consider this option. For a deeper dive into important questions and considerations, see Reverse Mortgage Self-Evaluation: A Checklist of Key Considerations.
1 Line of credit option is only available for adjustable rate HECM products. See Reverse Mortgage Line of Credit Growth Feature and Standard Helocs vs Reverse Mortgage Line of Credit.
2See Spouses and Reverse Mortgages.
3 See Sequence of Return Risk
4 See Managing Portfolio Longevity Using a Reverse Mortgage.
5 See Tax Strategies
