“While it’s common advice that retirees should avoid borrowing if possible, situations could arise when it will be necessary. Where to turn?”
It’s not uncommon for a homeowner to take out a home equity line of credit or borrow against an existing one. This can provide the funds to pay some bills and stay afloat.
Another option if you’re at least 62 with a home that’s not heavily mortgaged, is to take out a reverse mortgage. A revere mortgage gives you tax-free cash. No repayments are due, until you die or move out of the house.
However, these loans are expensive. In addition, reverse mortgages aren’t for those people who want to give their home to heirs, because most or all of the home’s equity may be eaten up by the loan principal and interest.
Fed Week’s recent article entitled “Considerations for Borrowing in Retirement” explains that reverse mortgages work best for seniors who need cash, who want to stay in their homes and who have few other options.
These HECM reverse mortgage loans are insured by the Federal Housing Administration (FHA). They let homeowners convert their home equity into cash with no monthly mortgage payments.
After getting a reverse mortgage, borrowers are still required to continue to pay property taxes and insurance. They also must maintain the home, according to FHA guidelines.
People use reverse mortgage loans to pay for home renovations, as well as medical and daily living expenses. Some homeowners who have an existing mortgage will use their reverse mortgage loan to pay off their existing mortgage and get rid of their monthly mortgage payments.
When the homeowner moves, sells the house, or passes away, the loan becomes due. If the house is held until death, heirs have the option to take out a conventional mortgage, pay off the reverse mortgage and continue to live there.
Other options include loans against your life insurance or your securities portfolio.
Ask a qualified estate planning attorney or elder law lawyer how a reverse mortgage might fit into your situation.
Reference: Fed Week (May 16, 2019) “Considerations for Borrowing in Retirement”