The reverse mortgage products offered today provide multiple ways to access home equity and almost unlimited ways to use the funds. Here are eight of the most popular ways to use funds from a reverse mortgage:
- Paying off Debt
Reverse mortgages can be used to pay off debt by using the loan proceeds to pay off an existing mortgage. If you have an existing mortgage on your home, the loan proceeds from the reverse mortgage are first used to pay off that loan. Since no monthly mortgage payments are required on the reverse mortgage, you can eliminate that monthly expense and keep more cash to use as you see fit, like paying off other debts.
- Covering Emergencies
Reverse mortgage funds can be used however you wish. While many homeowners opt for a reverse mortgage to eliminate debt and keep more money on hand for everyday bills and expenses, it doesn’t have to stop there. Reverse mortgage borrowers use a reverse mortgage line of credit as a sort of long-term care health insurance policy. Any portion of the line that you don’t touch will continue to increase, giving you a growing, go-to source of funds to help you pay for medical emergencies or your long-term care needs.
- Home Renovations and Repairs
You can use a reverse mortgage to make home improvements and repairs. When you apply for a reverse mortgage, an appraiser will be sent to appraise your house prior to renovation. Many homeowners use a portion of the funds they access to tackle large home improvement projects. If you are using funds to make modifications to improve the home and make it more accessible, you may be able to deduct the interest when you sell your home.
- Purchasing a Home
Buying a home with a reverse mortgage is an option for seniors who want to use their existing home equity or other savings to purchase a new primary residence without monthly mortgage payments. This allows the buyer to purchase more home without having to make mortgage payments. To qualify for a reverse mortgage for purchase, borrowers typically need to be 62 or older, have enough cash for a substantial down payment, and have enough income to cover housing and living expenses.
- Ongoing Medical Expenses
Reverse mortgage borrowers may use a reverse mortgage line of credit as a sort of long-term care health insurance policy. Any portion of the line that you don’t touch will continue to increase, giving you a growing, go-to source of funds to help you pay for medical emergencies or your long-term care needs.
- Supplementing Income
Reverse mortgage borrowers can access funds to supplement Social Security or other income. Homeowners can use reverse mortgages for anything, but many use the funds to supplement retirement income. A reverse mortgage may make it possible for older homeowners to remain in their home and “age in place” instead of having to relocate.
Most reverse mortgage borrowers use the funds for paying for basic needs in retirement. However, there are some circumstances where borrowers use a portion of their funds for “fun” things like taking their dream vacation. Since funds can be drawn in multiple ways, they can still use part of the funds to supplement Social Security or other income, meet medical expenses, pay for in-home care, and make home improvements.
Reverse mortgages can be used for investments. According to U.S. News, a reverse mortgage can be part of an investment strategy or insurance policy that extends retirement savings, provides income tax-free, and keeps you in your home. It is recommended to first speak with a qualified financial advisor before deciding to make any type of major investment.
Reverse mortgages now offer unparalleled flexibility in how and when your funds are accessed. This flexibility allows borrowers to use their funds in multiple ways. How funds are accessed can be tailored to each borrower’s specific needs. It may be a one-time lump-sum payment, or fixed monthly payments (for a set term or as long as you live in the house), a line of credit that grows as the equity in your home appreciates, or any combination of these options.
If you or someone you know is curious about reverse mortgages, we encourage you to speak with a qualified advisor to learn more.