A reverse mortgage is a major type of loan, as is any loan that uses your home as collateral. But unlike home equity loans or HELOCs, the balance on a reverse mortgage does not become due until you pass away, move away permanently, or fail to comply with loan obligations. Moreover, a reverse mortgage does not require you to make a monthly mortgage payment–a feature that is unique to reverse mortgages.
Taking these things into consideration, it’s safe to say that using a reverse mortgage responsibly can bring a meaningful impact on your finances compared to other home loans. You won’t need to pay the mortgage anymore, you get to keep ownership of your home, you get access to your home equity, and you don’t have to worry about repaying the loan yourself (unless you want to, of course). With that in mind, a reverse mortgage can give you the means to accomplish a lot of things–and of them is changing your lifestyle.
In this article, we talk about how a reverse mortgage can impact your finances, and how you can use your reverse mortgage proceeds to change your lifestyle wisely.
How a Reverse Mortgage Impacts Your Finances
A reverse mortgage is quite different from other types of home equity loans. For one thing, instead of paying the mortgage, you can receive a monthly payment, cash out, or a line of credit. And you don’t have to pay back the loan unless you want to–the balance does not become due until you die, move away permanently, or fail to meet the loan obligations. If your surviving family wishes to keep the home, they have the option of paying back the loan themselves.
Now that you know the basics, let’s go into deeper detail on how a reverse mortgage can impact your finances:
- You have more spending power. You no longer have to pay the mortgage every month and now have additional income to spend on whatever you like. This equals more cash flow and, of course, spending power.
- You can pay for large expenses. If you choose to receive your reverse mortgage funds through a lump sum payment, you can pay for large expenses that you would otherwise not be able to pay through cash or without taking out another loan (e.g. major home renovations, a new car, a recreational vehicle, etc.)
- You can grow your credit. You also have the option of receiving your funds through a line of credit. If you leave your line of credit untouched, it has the potential to grow over time. Check out our article on how an unused line of credit grows to learn more about this topic. (insert live link to article)
How to Use Your Proceeds to Change Your Lifestyle
A reverse mortgage can change your life. While that sounds a bit dramatic, the substantial increase in your retirement income can certainly make way for a lot of changes in your current lifestyle. When you use them right, reverse mortgage proceeds can fund a lot of positive changes, such as:
No matter how many discounts you secure, traveling is expensive. It’s the main reason why a lot of people have to save a significant amount of money before they even reach retirement age. Funding your travel plans is one great way to utilize your reverse mortgage proceeds, especially if you plan to travel long-term (as long as you aren’t away from your residence for more than twelve months).
Here’s an article on how to finance travel after you retire for more input! [insert live link]
Not worrying about money
The average U.S. earner spends quite a lot of time worrying about finances, and for many older adults, the worrying doesn’t stop even after they leave the workforce. One of the best things about a reverse mortgage is that it takes away the biggest monthly expense from your life: the mortgage, and instead gives you money to spend on whatever you want. For many retirees, this eliminates the constant worrying about money–or at least makes it less frequent.
And what happens when you don’t worry about money as much? More time to think about other important things, engage in hobbies, take care of yourself, and literally anything else.
Hobbies aren’t always free or inexpensive. And for someone on a limited income, it can be incredibly frustrating to not be able to do the things you want–especially now that you have all the time in the world to do them. Reverse mortgage proceeds can also help you out in this avenue; by giving you more disposable income to spend on things that keep you happy and entertained.
It is an unfortunate fact that living a healthier lifestyle can often be expensive. In a 2013 study, researchers found that a healthy diet vs. an unhealthy diet costs $1.50 more per day per person. While that amount seems negligible for small families or people that live alone, the cost can add up, especially for retirees living on a limited income.
Furthermore, fresh, healthy food tends to be more expensive compared to processed food, especially in cities where produce and fresh meat are not easily accessible. As a result, consumers eat more processed food than they do fresh food to be able to get “more bang for their buck”; something that is very common among low-income communities.
Taking out a reverse mortgage increases your ability to eat a healthier diet, which, in turn, makes you less susceptible to lifestyle-related diseases. Consequently, you may also have lower medical expenses as you grow older. It’s like a positive domino effect: you spend more on healthier food and therefore build a healthier body, and spend less on medical needs over time. A preventative lifestyle, so to speak.
Related: Healthy Retirement Practices You Can Do With Your Grandchildren
Speaking of prevention, having more disposable income also gives you more access to preventative services. It’s easier to catch a disease early on, prevent mental illness, and delay physical decline when you can afford the services and therapies that aim to prevent them.
In a lot of ways, a reverse mortgage can give you more time. For one, you won’t have to take up another job in retirement if your income is enough to meet your needs. You have more time to spend on yourself, your loved ones, your hobbies, and anything else that makes you happy.
And if you use your proceeds to live a healthier life, you can effectively increase your longevity and live independently for as long as possible. It’s not just a financial tool that gives you access to your home equity; it gives you the freedom to spend your time on the people and things most important to you.
Major lifestyle upgrades
As mentioned before, a reverse mortgage can allow you to afford big-ticket purchases without having to take out another loan. Major home upgrades, long-term travel, recreational vehicles, and expensive hobbies are just a few examples of major lifestyle upgrades that you can spend your proceeds on.
A fresh start
A traditional reverse mortgage requires you to stay in your primary residence until you die, sell the home, or decide to move away permanently. An HECM for Purchase or H4P, on the other hand, allows you to purchase a new eligible residence using the loan proceeds. If you wish to have a fresh start somewhere else without having to take out another mortgage, an H4P is a great choice.
Talk to Us About Reverse Mortgages Today
If you wish to know more about reverse mortgages, our reverse mortgage experts are always available by phone at (844) 230-6679 or by email at firstname.lastname@example.org. You can also learn more about reverse mortgages, finances, and retirement tips in our information center here.