Deciding where and how you want to live during retirement is an important part of the financial planning process for seniors. While many want to stay in the home where they raised a family, others would prefer to downsize into a smaller place or relocate to a golf course community, a beach resort or an urban condo.
Are you ready to buy a retirement home?
Low mortgage interest rates and more affordable home prices offer an advantage to homebuyers, but many seniors worry that they cannot sell their existing home for a high enough price. Seniors that need the equity in their home to purchase another home are often concerned that the result of a move will be a lack of available cash for living expenses. A reverse mortgage can be a solution that can assist both seniors who want to stay in their home and those who want to move.
How reverse mortgages help stay-at-home seniors
A reverse mortgage, available to seniors age 62 and older, can provide additional cash on a monthly basis for living expenses or be accessed as a lump sum for paying off an existing mortgage or other debt or making a home more livable for aging in place. Another reverse mortgage option is to establish a line of credit for future needs. The amount available for borrowing depends on the amount of equity in the home and the age of the homeowners.
Reverse mortgage for purchase
Seniors who would prefer to move can also take advantage of a reverse mortgage by closing on a reverse mortgage loan and a new home loan at the same time. Here's how it works: If the seniors are selling a home for $300,000 and have $200,000 in equity, they can use $200,000 as a down payment or even make a cash purchase of their retirement home.
The seniors can then immediately apply for a reverse mortgage on the $200,000 in equity they will have in their new home either as a line of credit or for monthly income. The comfort of having both the home they want and a source of income can make retiring a more realistic option for people.
One caveat on the home purchase: a reverse mortgage is only available on a principal residence, so the seniors cannot buy a second home for a future retirement and take out a reverse mortgage right away.
While there are closing costs and insurance costs for reverse mortgages, seniors should consult with a reverse mortgage expert to see if this loan is right for them.
Michele Lerner
Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance and business. Her clients include The Washington Times, Urban Land Magazine, NAREIT's Real Estate Portfolio, and numerous Realtor association publications. Michele's first book,
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