One often overlooked tactic that seniors can employ when seeking to pay down outstanding debt in retirement is the strategic use of a reverse mortgage loan, one of several options that an older American can use when examining their finances during their post-working years. This is according to contributor Bob Sullivan and editor John Schmidt in a new piece published at Forbes Advisor.
In addition to options that include finding an extra income stream; downsizing; and home equity or debt-consolidation loans, a reverse mortgage is one option a senior can use without incurring another monthly debt payment: something that can be difficult to manage on a fixed income.
“This tool can be used by people aged 62 and over to borrow against their home equity, and payments aren’t required until the borrower sells the house, moves or dies,” the pair explains.
Particularly for someone who is disinclined to cede ownership of the home or to move into another home or facility in older age, the line of credit found in some reverse mortgage product options can be an attractive alternative to downsizing or moving into some kind of senior housing or assisted living facility. Still, the pair does give lip service to some of the reputational issues still persisting about the product category.
“If you’re not ready to give up ownership in your home, you might consider a reverse mortgage home equity line of credit, which makes that money available if you need it in case of emergency,” the piece reads. “Reverse mortgages have a checkered past, but new regulations have cleaned up the industry, to a degree. Still, proceed with caution.”
One expert that agrees with the idea that reverse mortgages are worthy of consideration in retirement is Chris Chen, a certified financial planner (CFP) with Insight Financial Strategists in Boston, Mass.
“If their retirement plan is tight already, which is the case for many, a retiree can monetize their home by replacing their mortgage with a reverse mortgage,” Chen tells Forbes. “The benefit is that they would free themselves from monthly payments without depleting their retirement assets.”
Additional options that a senior may want to consider include downsizing (which could be particularly beneficial in a climate of rising home prices, the article says); careful consideration of home equity loans or debt-consolidation loans; cash-out life insurance policies; or the transfer of a credit card balance according to the pair.
Article by Chris Clow on reversemortgagedaily.com
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