Home ownership is the backbone of retirement. We pay that mortgage every month for 30 years. The goal is to live in a home we own free and clear. We want to do this as soon as we can, but most people set a deadline of having no mortgage when they retire.. It reduces overhead. It offers security when we need it most.
In fact, owning our home can do more for us. We may not be asking enough of our retirement home. Sure, it can provide mortgage-free living. But it can also offer monthly income, tax-free.
I’m talking about the long awaited and finally all-grown-up reverse mortgage. What was once a warning flag for those teetering on the edge of financial disaster is becoming an important retirement tool.
Everything changed around the time the Saver Home Equity Conversion Mortgage appeared on the market. This product reduced the fees associated with getting a reverse mortgage. The fee reduction wasn’t particularly life changing. But it ushered in the era of reverse mortgages as a tool for people who were practical and home equity rich, rather than the final straw for the desperate.
The change was aided by research on using reverse mortgages to extend the life of investments. Most retirees need to withdraw more than the much-promoted four percent. A reverse mortgage can help this group stay afloat longer. It may also allow them to leave a larger estate..
Eighty percent of us have more equity in our home than in all our other financial assets combined. It isn’t always logical to let that money live the life of leisure as simple equity. It can be put to work through a reverse mortgage. You worked hard making 30 years of house payments – maybe your house should repay the favor.
Scott Burns is the retired Chief Investment Officer of AssetBuilder, the creator of Couch Potato investing, and a personal finance columnist with decades of experience.