Should I Use a Reverse Mortgage to Enjoy Retirement?

Many people imagine retirement as a carefree time. That’s the dream for most, but all too often, financial worries and constraints get in the way. A reverse mortgage may not be the right solution for every retiree, but in many cases, it can supply you with the funds you need for just about anything.

Wondering what you may be able to use your reverse mortgage funds for? Here’s a closer look.

Supplementing Your Income

With the cost of living going up seemingly every day, many retirees (and those planning for retirement) worry their retirement savings may not be enough. Social Security benefits can help, but they often aren’t enough to cover your expenses.

Many people who take out reverse mortgages elect to receive their loan proceeds in monthly installments. This extra income can grant you the financial security you need to truly relax.

Paying Off High-Interest Debt

Dealing with debt in retirement adds another layer of stress. If you’re paying off credit cards or high-interest loans, you might consider using some of your reverse mortgage funds to wipe them out.

Using your loan to consolidate your debt comes with another advantage — it helps simplify your life. If you have multiple credit cards or other accounts open, keeping track of monthly payments is likely taking up more mental energy than you realize. When your reverse mortgage is the only debt you have, relaxing into retirement gets easier.

Fixing Up Your Home

Making repairs to your home can be expensive. When you’re retired, unexpected appliance breakdowns and other issues have a greater financial impact than they used to.

If you’re planning on renovating or there are a few things you’ve been meaning to fix, a reverse mortgage might offer the funding you need. You also might choose to set aside part of your loan proceeds to cover surprise repairs.

Traveling or Pursuing Hobbies

Achieving financial stability is important in retirement but so is enjoying yourself. If you’ve always wanted to visit Europe or get into mountain biking, you can fund these exciting new endeavors with money from your reverse mortgage.

Paying for In-Home Care

When you have a reverse mortgage, you must maintain your home as your primary residence. You likely don’t want to move into a care facility — if you do, your loan balance becomes due immediately.

Fortunately, there’s an alternative. It’s not unusual for homeowners to use the proceeds from a reverse mortgage to pay for in-home care.

Covering Medical Expenses

Even if you don’t anticipate needing an in-home caregiver, you may find that your medical expenses increase with age. Your reverse mortgage can help cover the cost so you don’t go into medical debt. If you have existing medical debt, your loan proceeds can help with that, too.

Delaying Your Retirement Plan Withdrawals

With the right planning, your reverse mortgage can save you money while giving your retirement accounts more time to grow. Many retired people find that they need to make an early 401(k) withdrawal or two. These withdrawals are taxed at a higher rate.

Putting off your 401(k) withdrawals means you can minimize the taxes you pay — and give the funds in your account time to accumulate more interest.

Buying Another Home

Most people who take out reverse mortgages do so because they want to remain in their home. However, under the right set of circumstances, you can also use a reverse mortgage to buy another home.

This is called a “reverse mortgage for purchase,” and it involves selling your existing home and using the money to put a large down payment on a new primary residence. You can then take out a reverse mortgage to finance the rest of the home.

This option is complex, and it may not be right for everyone. It’s ideal for homeowners who want to downsize or relocate to a less expensive area.

Things to Keep in Mind

While a reverse mortgage can open new doors in retirement, there are a few important points to remember:

• Your loan balance grows over time. Because you’re not making monthly payments, interest and fees get added to the balance each month.
• You still have homeowner obligations. Property taxes, insurance, and home maintenance remain your responsibility.
• It impacts your heirs. The loan is typically repaid when you move out or pass away, which may reduce the equity left to your children or beneficiaries.

Who Is a Good Fit?

A reverse mortgage isn’t right for everyone, but it can be an excellent fit if you:

• Are 62 or older
• Live in your home as your primary residence
• Have significant equity in the property
• Can continue to pay property taxes, insurance, and upkeep

If you meet these criteria and want to turn home equity into flexible retirement income, a reverse mortgage could be worth exploring.

How It Works in Practice

Let’s say you’re 70 years old, your home is worth $400,000, and you still owe $50,000 on your current mortgage. With a reverse mortgage, you could pay off that $50,000 balance, eliminating monthly mortgage payments.

The remaining available equity could then be taken as a line of credit, monthly income, or a lump sum to cover expenses like travel, medical costs, or home improvements. This is just an example, but it shows how a reverse mortgage can give you more freedom in retirement.

FAQs

Can you use a reverse mortgage to pay for long-term care?

Yes. Many homeowners use reverse mortgage funds to cover the cost of in-home caregivers or medical support so they can remain in their homes longer. Just remember that you must continue living in the home as your primary residence for the loan to remain in good standing.

Does using the money for travel affect my loan?

No. Once you qualify, the funds are yours to use as you choose—whether for bills, renovations, or vacations. The only requirement is that you keep the home as your primary residence and stay current on taxes and insurance.

Do my heirs have to pay it back if I use the money for personal expenses?

Your heirs don’t become personally responsible for your spending choices. When the loan comes due, they can either sell the home to repay the balance or pay 95% of its appraised value to keep it. The loan is non-recourse, meaning neither you nor your heirs will ever owe more than the home’s value.

Is a Reverse Mortgage Right for You?

If a reverse mortgage lines up with your goals, it can put you on the fast track to a happy retirement. However, this is a momentous decision, and it’s not one you should rush into.

The South River Mortgage team can help you learn the ins and outs of reverse mortgages so you can better determine whether one is right for you. Contact us now to get started!