Retirement planning is a crucial concern for people nearing the end of their working years. After all, you will want to be stress-free and financially independent once you reach this stage of life.
Thankfully, some tools and measures keep you secure after retirement, and a reverse mortgage is one of these. It enables you to fulfill your cash needs by pulling the equity in your home.
Even if you do not need cash, you can still use it strategically in retirement planning. Here are some ways it can help you as a smart financial planning tool.
Increase your cash flow
A mortgage payment is a massive expense that takes a considerable part of your monthly income. However, your existing debt is paid off with a reverse mortgage. You end up cutting down your monthly expenses and have extra cash in your pocket every month, which would have otherwise gone to clearing the monthly expense. A higher cash flow helps you live off comfortably even with your limited retirement income.
While you will have more cash in hand every month with this option, it also leaves you stress-free because you do not have the mortgage burden any longer. A jumbo reverse mortgage allows you to receive a lump sum for paying off the balance. While you will have to keep paying your homeowner’s insurance and property taxes, you are technically free of the monthly mortgage payments.
Delay Social Security and pension payouts
Retirees often look forward to Social Security and pension payouts to support them post-retirement. But you may be tempted to use them as soon as you get your hands on them. But a reverse mortgage gives you the financial support you need, which means that you can wait on getting these payouts. The longer you delay them, the more is the amount you receive.
Access a low-cost line of credit
You also get access to a low-cost line of credit to draw on your loan. You have to pay interest only on the amount you draw, rather than the entire credit line. It lets the line of credit grow over time if you choose to draw it at a later date. You end up with a larger line of credit over the years, and it gives you the financial cushion you need after retirement.
Downsize to a smaller home
When you retire and your children are ready to be on their own, you may want to move into a smaller home or a retirement community. Downsizing is a good idea at this stage, as moving to a smaller place frees you from the stress of ongoing home maintenance and high mortgage payments. A reverse mortgage can help you with it because you can use the loan to clear the existing loan on your current property and sell it off easily.
A reverse mortgage can serve as the foundation of a solid retirement plan, provided that you use it smartly. You have the money you need without giving up on the title and rights to your place. It’s a win-win situation.