Saving for retirement is no walk in the park these days and many older Americans are lagging behind. A Wells Fargo survey found that a stunning 41% of those aged 50 to 59 aren’t socking away anything at all for…
their golden years. The ones who are saving are setting aside a median of just $78 a month. Here are 4 reasons why you should consider a Reverse Mortgage.
Social Security can cover part of the gap but for many retirees, it’s not enough to combat rising healthcare costs and still manage day-to-day expenses. That’s where a reverse mortgage can come in handy. A reverse mortgage, also called a Home Equity Conversion Mortgage, is a way for homeowners aged 62 and older to tap into their home equity, either through a lump-sum, line of credit or monthly payments made to you.
So why would you want to do that? There are several good reasons and if any of these scenarios apply to you, you might be a good candidate for a reverse mortgage.
- Medical bills are taking a bite out of your budget
There’s no doubt that healthcare is one of the biggest expenses seniors face. The average 65-year-old couple shells out nearly $270,000 for medical care during retirement, according to HealthView Services’ 2015 Retirement Health Care Cost Data Report. That’s on top of any medical expenses that are covered by Medicare Parts B and D or a supplemental insurance policy. If you’ve got an ongoing health issue, the proceeds from a reverse mortgage can ease some of the cost so you’re not draining your retirement savings prematurely.
- You’re ready to ditch high interest debt
Ideally, by the time you reach retirement you’ve cleared any lingering debts but unfortunately, that’s not reality for a lot of retirees. Seniors are carrying higher levels of credit card debt than ever and that’s not the only financial burden they face. According to the Government Accountability Office, Americans aged 65 and older owe a collective $18.2 billion in federal student loans.
If you’re paying double digits in interest on your debt, digging out of the hole may be all but impossible on a fixed income. Using the proceeds from a reverse mortgage to wipe out those debts can save you money in the long run, since the interest rate is typically closer to what you’d pay on a traditional home loan.
- You’re in danger of losing the home
In the wake of the housing market collapse, AARP estimates that 1.5 million Americans aged 50 and over lost their homes to foreclosure. If you’ve gotten behind on your mortgage payments, taking out a reverse mortgage can help you hang on to your home. It also creates some much-needed wiggle room in your monthly budget since the proceeds will wipe out your existing mortgage payment.
This option is usually best if you’re planning to stay in the home long-term, since the reverse mortgage would be due and payable if you moved out. Just keep in mind that you’d still be on the hook for paying things like property tax, insurance and HOA fees while you live in the home.
- You haven’t saved enough
The National Institute on Retirement Security puts the typical retirement savings for seniors aged 55 to 64 at just over $100,000, which is a far cry from the $1 million minimum that most financial experts recommend. While Social Security pays out an average of just under $1,300 a month, that still may not be enough to pay the bills. If you know that you’re going into retirement with a serious shortfall, a reverse mortgage can help you stretch your savings dollars further.
The bottom line
Taking out a reverse mortgage isn’t necessarily ideal for every homeowner but there are some definite advantages worth considering. Most importantly, the proceeds can act as a financial safety net so you don’t spent your retirement plagued by money worries.