Baby Boomers Can Reverse Mortgage Their Way to a Better Retirement.
Retirement planning is an important task for everyone, but especially so for baby boomers. As the first generation to be better educated and have a longer life expectancy than their parents, they are trying to create financial security while staying true to who they are. One way that this can be done is by using a reverse mortgage as part of retirement planning.
A reverse mortgage loan allows seniors, age 62 or older, with home equity to access funds without having to sell the property or move out.
Why Boomers Are Eyeing Reverse Mortgages
According to a recent US Census Bureau report, about 50% of boomers have no retirement savings. Of those who have some savings, they average $49,800. Most single and married seniors will get 90% of their income from social security benefits. But, according to a 2021 report from the US Treasury, Social Security is currently forecasted to only pay full benefits until 2035.
Even for boomers with robust savings, a reverse mortgage is an appealing financial tool to get more from retirement. The rise in home values has translated to hefty home equity that retirees can leverage as part of retirement planning.
Loan Products Available
There are two loan products available for a reverse mortgage, also known as a HECM (Home Equity Conversion Mortgage)— a Fixed Rate HECM or an Adjustable Rate HECM.
Reverse Mortgages: What You Need to Know
No Monthly Payment
There is no monthly payment required and it does not increase your debt-to-income ratio. In fact, reverse mortgages require the repayment of all forward mortgages.
Reverse mortgages have incredible tax advantages. You can lower your adjusted gross income by drawing on this non-taxable source. You are still responsible for paying for homeowners insurance and property taxes. The good news is you can set aside some of the loan to cover this.
These are non-recourse loans meaning that your house can’t be foreclosed on and ensures that the owner will be able to live in it until they pass.
Social Security Benefits
Reverse Mortgages can be used as a tool to maximize your social security benefit from 70% of the benefit to getting 130%. This is done by using the funds for the mortgage to delay taking SSI until age 70. You can view the delay chart here.
Satisfaction Among Retirees
There is a lot of conflicting information out there about reverse mortgages. Although, as of late, more financial planners and experts, such as Suze Orman, see the value, and the tide is turning on perceptions. It helps to know, among retirees who took one, just how happy they are and how much of an impact it made. Read on to see how things shake out.
Satisfaction with advisement received was very high. A survey of borrowers three to five years after originating the loan shows that 87 to 91 percent of borrowers felt that their loan officer and counseling session provided enough information to inform their decision, with 85 percent being satisfied or very satisfied with their decision (Moulton, Loibl, and Haurin 2017).
Housing and Financial Picture
Satisfaction with housing and their financial picture was very high. A follow-up analysis indicated that older adults who obtained a reverse mortgage exhibited higher levels of financial and housing satisfaction than those who were counseled and did not obtain a reverse mortgage (Loibl et al. 2018).
Many baby boomers may have a better chance at enjoying retirement by using a reverse mortgage. According to new research, many are satisfied with their decision after the counseling session and feel that they had enough information to make an informed decision about taking out the loan. This has helped them financially in terms of housing satisfaction and financial stability.
Contact us at Nathan Mortgage for a free consult today.