The troubled economy has made the idea of retirement very uncertain for many seniors who are now struggling to come up with ways to securely finance their futures.
What most senior homeowners don’t realize is that getting a line of credit through a reverse mortgage can help them preserve their equity from inflation, as it will allow them to lock in on historically low interest rates and existing home values, and grow the amount of funding available to them.
Reverse mortgages can be taken out by people aged 62 or older who either own their homes outright, or have a very low mortgage balance; there are currently no income, asset, or credit requirements. The loan allows seniors to access the equity in their homes in several different ways, including a line of credit, monthly payments, a lump sum, or a combination of these options.
Seniors can then use that money for multiple purposes, including monthly expenses, medical bills, or paying off an existing mortgage.
The loan does not have to be repaid as long as the senior remains living in the home and pays property taxes and mortgage insurance, on the assumption that the balance of the loan will be paid off through the sale of the estate once the homeowner moves away or dies.
Fortunately for seniors, home equity among 62+ households has fared much better than the home equity of the overall population, at $3.14 trillion, according to a report by the National Reverse Mortgage Lenders Association and RiskSpan. While it has fallen 22% from 2006 peaks, this is considerably lower than the 38% drop for the overall population.
One of the most popular options for reverse mortgages is the line of credit, available only in an adjustable rate. And, with interest rates at their lowest since the Great Depression, now is the time for seniors to lock in the rates and make full use of current purchasing value, says financial planner Karen DeRose, managing partner of DeRose Financial Planning Group.
Taking out a line of credit through a reverse loan will serve to shield a homeowner’s assets from inflation in two ways, she says.
“You’re locking into a lower rate now, because if you decide to do a reverse mortgage in the future, rates might be higher, and it will cost you more in interest,” says DeRose.
Secondly, she continues, you’re accessing that money now.
“You’re shielding yourself from a possible drop in the value of your home as well, because you’ll have that money now, and you’ll be able to work with it now,” she added.